Correlation Between National Grid and Eversource Energy
Can any of the company-specific risk be diversified away by investing in both National Grid and Eversource 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 National Grid and Eversource Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Grid PLC and Eversource Energy, you can compare the effects of market volatilities on National Grid and Eversource 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 National Grid with a short position of Eversource Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Grid and Eversource Energy.
Diversification Opportunities for National Grid and Eversource Energy
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between National and Eversource is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding National Grid PLC and Eversource Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eversource Energy and National Grid 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 National Grid PLC are associated (or correlated) with Eversource Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eversource Energy has no effect on the direction of National Grid i.e., National Grid and Eversource Energy go up and down completely randomly.
Pair Corralation between National Grid and Eversource Energy
Considering the 90-day investment horizon National Grid PLC is expected to generate 0.81 times more return on investment than Eversource Energy. However, National Grid PLC is 1.24 times less risky than Eversource Energy. It trades about -0.07 of its potential returns per unit of risk. Eversource Energy is currently generating about -0.12 per unit of risk. If you would invest 6,429 in National Grid PLC on August 26, 2024 and sell it today you would lose (118.00) from holding National Grid PLC or give up 1.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
National Grid PLC vs. Eversource Energy
Performance |
| Timeline |
| National Grid PLC |
| Eversource Energy |
National Grid and Eversource Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Grid and Eversource Energy
The main advantage of trading using opposite National Grid and Eversource Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Grid position performs unexpectedly, Eversource 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 Eversource Energy will offset losses from the drop in Eversource Energy's long position.| National Grid vs. Southern Company | National Grid vs. Edison International | National Grid vs. American Electric Power | National Grid vs. Duke Energy |
| Eversource Energy vs. CenterPoint Energy | Eversource Energy vs. FirstEnergy | Eversource Energy vs. Pinnacle West Capital | Eversource Energy vs. Edison International |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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