Correlation Between Consolidated Edison and Red Electrica
Can any of the company-specific risk be diversified away by investing in both Consolidated Edison and Red Electrica 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 Consolidated Edison and Red Electrica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consolidated Edison and Red Electrica Corporacion, you can compare the effects of market volatilities on Consolidated Edison and Red Electrica 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 Consolidated Edison with a short position of Red Electrica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consolidated Edison and Red Electrica.
Diversification Opportunities for Consolidated Edison and Red Electrica
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Consolidated and Red is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and Red Electrica Corporacion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Electrica Corporacion and Consolidated Edison 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 Consolidated Edison are associated (or correlated) with Red Electrica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Electrica Corporacion has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and Red Electrica go up and down completely randomly.
Pair Corralation between Consolidated Edison and Red Electrica
Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 1.38 times more return on investment than Red Electrica. However, Consolidated Edison is 1.38 times more volatile than Red Electrica Corporacion. It trades about 0.21 of its potential returns per unit of risk. Red Electrica Corporacion is currently generating about 0.05 per unit of risk. If you would invest 8,837 in Consolidated Edison on November 5, 2024 and sell it today you would earn a total of 537.00 from holding Consolidated Edison or generate 6.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consolidated Edison vs. Red Electrica Corporacion
Performance |
| Timeline |
| Consolidated Edison |
| Red Electrica Corporacion |
Consolidated Edison and Red Electrica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consolidated Edison and Red Electrica
The main advantage of trading using opposite Consolidated Edison and Red Electrica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consolidated Edison position performs unexpectedly, Red Electrica 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 Red Electrica will offset losses from the drop in Red Electrica's long position.| Consolidated Edison vs. Duke Energy | Consolidated Edison vs. Dominion Energy | Consolidated Edison vs. American Electric Power | Consolidated Edison vs. Nextera Energy |
| Red Electrica vs. Engie Brasil Energia | Red Electrica vs. Centrais Eltricas Brasileiras | Red Electrica vs. Centrais Electricas Brasileiras | Red Electrica vs. Ameren Corp |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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