Correlation Between Entergy and MGE Energy
Can any of the company-specific risk be diversified away by investing in both Entergy and MGE Energy 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 Entergy and MGE Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Entergy and MGE Energy, you can compare the effects of market volatilities on Entergy and MGE Energy 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 Entergy with a short position of MGE Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Entergy and MGE Energy.
Diversification Opportunities for Entergy and MGE Energy
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Entergy and MGE is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Entergy and MGE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGE Energy and Entergy 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 Entergy are associated (or correlated) with MGE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGE Energy has no effect on the direction of Entergy i.e., Entergy and MGE Energy go up and down completely randomly.
Pair Corralation between Entergy and MGE Energy
Considering the 90-day investment horizon Entergy is expected to generate 1.07 times less return on investment than MGE Energy. In addition to that, Entergy is 1.67 times more volatile than MGE Energy. It trades about 0.16 of its total potential returns per unit of risk. MGE Energy is currently generating about 0.28 per unit of volatility. If you would invest 9,169 in MGE Energy on August 27, 2024 and sell it today you would earn a total of 1,245 from holding MGE Energy or generate 13.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Entergy vs. MGE Energy
Performance |
| Timeline |
| Entergy |
| MGE Energy |
Entergy and MGE Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Entergy and MGE Energy
The main advantage of trading using opposite Entergy and MGE Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy position performs unexpectedly, MGE Energy 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 MGE Energy will offset losses from the drop in MGE Energy's long position.The idea behind Entergy and MGE Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| MGE Energy vs. CMS Energy | MGE Energy vs. Ameren Corp | MGE Energy vs. Pinnacle West Capital | MGE Energy vs. Evergy, |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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