Correlation Between Entergy and National Grid
Can any of the company-specific risk be diversified away by investing in both Entergy and National Grid 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 National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Entergy and National Grid PLC, you can compare the effects of market volatilities on Entergy and National Grid 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 National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Entergy and National Grid.
Diversification Opportunities for Entergy and National Grid
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Entergy and National is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Entergy and National Grid PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid PLC 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid PLC has no effect on the direction of Entergy i.e., Entergy and National Grid go up and down completely randomly.
Pair Corralation between Entergy and National Grid
Considering the 90-day investment horizon Entergy is expected to generate 1.37 times more return on investment than National Grid. However, Entergy is 1.37 times more volatile than National Grid PLC. It trades about 0.17 of its potential returns per unit of risk. National Grid PLC is currently generating about 0.1 per unit of risk. If you would invest 10,564 in Entergy on August 24, 2024 and sell it today you would earn a total of 4,591 from holding Entergy or generate 43.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Entergy vs. National Grid PLC
Performance |
| Timeline |
| Entergy |
| National Grid PLC |
Entergy and National Grid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Entergy and National Grid
The main advantage of trading using opposite Entergy and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy position performs unexpectedly, National Grid 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 National Grid will offset losses from the drop in National Grid's long position.The idea behind Entergy and National Grid PLC 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.| National Grid vs. Southern Company | National Grid vs. Edison International | National Grid vs. American Electric Power | National Grid vs. Duke Energy |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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