Correlation Between SCE Trust and National Grid
Can any of the company-specific risk be diversified away by investing in both SCE Trust 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 SCE Trust and National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SCE Trust III and National Grid PLC, you can compare the effects of market volatilities on SCE Trust 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 SCE Trust with a short position of National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of SCE Trust and National Grid.
Diversification Opportunities for SCE Trust and National Grid
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between SCE and National is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding SCE Trust III 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 SCE Trust 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 SCE Trust III 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 SCE Trust i.e., SCE Trust and National Grid go up and down completely randomly.
Pair Corralation between SCE Trust and National Grid
Assuming the 90 days trading horizon SCE Trust is expected to generate 4.25 times less return on investment than National Grid. But when comparing it to its historical volatility, SCE Trust III is 6.44 times less risky than National Grid. It trades about 0.15 of its potential returns per unit of risk. National Grid PLC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 5,399 in National Grid PLC on August 24, 2024 and sell it today you would earn a total of 911.00 from holding National Grid PLC or generate 16.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SCE Trust III vs. National Grid PLC
Performance |
| Timeline |
| SCE Trust III |
| National Grid PLC |
SCE Trust and National Grid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SCE Trust and National Grid
The main advantage of trading using opposite SCE Trust and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SCE Trust 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.| SCE Trust vs. SCE Trust IV | SCE Trust vs. SCE Trust V | SCE Trust vs. SCE Trust II | SCE Trust vs. SCE Trust VI |
| 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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