Correlation Between Duke Energy and Connecticut Light
Can any of the company-specific risk be diversified away by investing in both Duke Energy and Connecticut Light 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 Duke Energy and Connecticut Light into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Duke Energy and The Connecticut Light, you can compare the effects of market volatilities on Duke Energy and Connecticut Light 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 Duke Energy with a short position of Connecticut Light. Check out your portfolio center. Please also check ongoing floating volatility patterns of Duke Energy and Connecticut Light.
Diversification Opportunities for Duke Energy and Connecticut Light
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Duke and Connecticut is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light and Duke 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 Duke Energy are associated (or correlated) with Connecticut Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connecticut Light has no effect on the direction of Duke Energy i.e., Duke Energy and Connecticut Light go up and down completely randomly.
Pair Corralation between Duke Energy and Connecticut Light
Assuming the 90 days trading horizon Duke Energy is expected to generate 13.1 times less return on investment than Connecticut Light. But when comparing it to its historical volatility, Duke Energy is 2.31 times less risky than Connecticut Light. It trades about 0.02 of its potential returns per unit of risk. The Connecticut Light is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,250 in The Connecticut Light on September 3, 2024 and sell it today you would earn a total of 73.00 from holding The Connecticut Light or generate 2.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Duke Energy vs. The Connecticut Light
Performance |
| Timeline |
| Duke Energy |
| Connecticut Light |
Duke Energy and Connecticut Light Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Duke Energy and Connecticut Light
The main advantage of trading using opposite Duke Energy and Connecticut Light positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Duke Energy position performs unexpectedly, Connecticut Light 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 Connecticut Light will offset losses from the drop in Connecticut Light's long position.| Duke Energy vs. Centrais Eltricas Brasileiras | Duke Energy vs. Nextera Energy | Duke Energy vs. Consumers Energy | Duke Energy vs. CMS Energy |
| Connecticut Light vs. Ameren Illinois | Connecticut Light vs. The Connecticut Light | Connecticut Light vs. Southern Company | Connecticut Light vs. The Connecticut Light |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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