Correlation Between Spire and Dominion Energy
Can any of the company-specific risk be diversified away by investing in both Spire 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 Spire and Dominion Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Spire Inc and Dominion Energy, you can compare the effects of market volatilities on Spire 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 Spire with a short position of Dominion Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spire and Dominion Energy.
Diversification Opportunities for Spire and Dominion Energy
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between Spire and Dominion is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Spire Inc and Dominion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominion Energy and Spire 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 Spire Inc 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 Spire i.e., Spire and Dominion Energy go up and down completely randomly.
Pair Corralation between Spire and Dominion Energy
Allowing for the 90-day total investment horizon Spire is expected to generate 1.3 times less return on investment than Dominion Energy. But when comparing it to its historical volatility, Spire Inc is 1.18 times less risky than Dominion Energy. It trades about 0.08 of its potential returns per unit of risk. Dominion Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 4,363 in Dominion Energy on August 26, 2024 and sell it today you would earn a total of 1,451 from holding Dominion Energy or generate 33.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Spire Inc vs. Dominion Energy
Performance |
| Timeline |
| Spire Inc |
| Dominion Energy |
Spire and Dominion Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Spire and Dominion Energy
The main advantage of trading using opposite Spire and Dominion Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spire 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 Spire Inc 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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