Correlation Between Contact Energy and CENTRICA ADR
Can any of the company-specific risk be diversified away by investing in both Contact Energy and CENTRICA ADR at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Contact Energy and CENTRICA ADR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Contact Energy Limited and CENTRICA ADR NEW, you can compare the effects of market volatilities on Contact Energy and CENTRICA ADR and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Contact Energy with a short position of CENTRICA ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Contact Energy and CENTRICA ADR.
Diversification Opportunities for Contact Energy and CENTRICA ADR
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Contact and CENTRICA is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Contact Energy Limited and CENTRICA ADR NEW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CENTRICA ADR NEW and Contact Energy is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Contact Energy Limited are associated (or correlated) with CENTRICA ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CENTRICA ADR NEW has no effect on the direction of Contact Energy i.e., Contact Energy and CENTRICA ADR go up and down completely randomly.
Pair Corralation between Contact Energy and CENTRICA ADR
Assuming the 90 days horizon Contact Energy is expected to generate 1.02 times less return on investment than CENTRICA ADR. But when comparing it to its historical volatility, Contact Energy Limited is 1.43 times less risky than CENTRICA ADR. It trades about 0.48 of its potential returns per unit of risk. CENTRICA ADR NEW is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 545.00 in CENTRICA ADR NEW on September 3, 2024 and sell it today you would earn a total of 50.00 from holding CENTRICA ADR NEW or generate 9.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Contact Energy Limited vs. CENTRICA ADR NEW
Performance |
| Timeline |
| Contact Energy |
| CENTRICA ADR NEW |
Contact Energy and CENTRICA ADR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Contact Energy and CENTRICA ADR
The main advantage of trading using opposite Contact Energy and CENTRICA ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Contact Energy position performs unexpectedly, CENTRICA ADR can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CENTRICA ADR will offset losses from the drop in CENTRICA ADR's long position.| Contact Energy vs. CENTRICA ADR NEW | Contact Energy vs. Superior Plus Corp | Contact Energy vs. NMI Holdings | Contact Energy vs. Origin Agritech |
| CENTRICA ADR vs. CeoTronics AG | CENTRICA ADR vs. MOLSON RS BEVERAGE | CENTRICA ADR vs. EPSILON HEALTHCARE LTD | CENTRICA ADR vs. Collins Foods Limited |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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