Correlation Between PPL and Dominion Energy
Can any of the company-specific risk be diversified away by investing in both PPL and Dominion 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 PPL and Dominion Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PPL Corporation and Dominion Energy, you can compare the effects of market volatilities on PPL and Dominion 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 PPL with a short position of Dominion Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of PPL and Dominion Energy.
Diversification Opportunities for PPL and Dominion Energy
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between PPL and Dominion is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding PPL Corp. and Dominion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominion Energy and PPL 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 PPL Corporation are associated (or correlated) with Dominion Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominion Energy has no effect on the direction of PPL i.e., PPL and Dominion Energy go up and down completely randomly.
Pair Corralation between PPL and Dominion Energy
Considering the 90-day investment horizon PPL Corporation is expected to generate 0.88 times more return on investment than Dominion Energy. However, PPL Corporation is 1.14 times less risky than Dominion Energy. It trades about 0.33 of its potential returns per unit of risk. Dominion Energy is currently generating about 0.07 per unit of risk. If you would invest 3,212 in PPL Corporation on August 30, 2024 and sell it today you would earn a total of 288.00 from holding PPL Corporation or generate 8.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
PPL Corp. vs. Dominion Energy
Performance |
| Timeline |
| PPL Corporation |
| Dominion Energy |
PPL and Dominion Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PPL and Dominion Energy
The main advantage of trading using opposite PPL and Dominion Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PPL position performs unexpectedly, Dominion 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 Dominion Energy will offset losses from the drop in Dominion Energy's long position.The idea behind PPL Corporation and Dominion 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.| Dominion Energy vs. Southern Company | Dominion Energy vs. American Electric Power | Dominion Energy vs. Nextera Energy | Dominion Energy vs. Consolidated Edison |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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