Correlation Between PPL and National Grid
Can any of the company-specific risk be diversified away by investing in both PPL 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 PPL and National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PPL Corporation and National Grid plc, you can compare the effects of market volatilities on PPL 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 PPL with a short position of National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of PPL and National Grid.
Diversification Opportunities for PPL and National Grid
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between PPL and National is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding PPL Corp. 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 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 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 PPL i.e., PPL and National Grid go up and down completely randomly.
Pair Corralation between PPL and National Grid
Considering the 90-day investment horizon PPL is expected to generate 2.68 times less return on investment than National Grid. But when comparing it to its historical volatility, PPL Corporation is 4.39 times less risky than National Grid. It trades about 0.05 of its potential returns per unit of risk. National Grid plc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,118 in National Grid plc on November 2, 2024 and sell it today you would earn a total of 101.00 from holding National Grid plc or generate 9.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 91.7% |
| Values | Daily Returns |
PPL Corp. vs. National Grid plc
Performance |
| Timeline |
| PPL Corporation |
| National Grid plc |
PPL and National Grid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PPL and National Grid
The main advantage of trading using opposite PPL and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PPL 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 PPL Corporation 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. Consolidated Edison | National Grid vs. Entergy | National Grid vs. FirstEnergy | National Grid vs. PPL Corporation |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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