Correlation Between Union Electric and Xcel Energy
Can any of the company-specific risk be diversified away by investing in both Union Electric and Xcel 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 Union Electric and Xcel Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Union Electric and Xcel Energy, you can compare the effects of market volatilities on Union Electric and Xcel 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 Union Electric with a short position of Xcel Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Electric and Xcel Energy.
Diversification Opportunities for Union Electric and Xcel Energy
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between Union and Xcel is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Union Electric and Xcel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel Energy and Union Electric 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 Union Electric are associated (or correlated) with Xcel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Energy has no effect on the direction of Union Electric i.e., Union Electric and Xcel Energy go up and down completely randomly.
Pair Corralation between Union Electric and Xcel Energy
Assuming the 90 days horizon Union Electric is expected to generate 2.55 times more return on investment than Xcel Energy. However, Union Electric is 2.55 times more volatile than Xcel Energy. It trades about 0.1 of its potential returns per unit of risk. Xcel Energy is currently generating about 0.23 per unit of risk. If you would invest 9,400 in Union Electric on September 3, 2024 and sell it today you would earn a total of 1,600 from holding Union Electric or generate 17.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Union Electric vs. Xcel Energy
Performance |
| Timeline |
| Union Electric |
| Xcel Energy |
Union Electric and Xcel Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Union Electric and Xcel Energy
The main advantage of trading using opposite Union Electric and Xcel Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Union Electric position performs unexpectedly, Xcel 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 Xcel Energy will offset losses from the drop in Xcel Energy's long position.| Union Electric vs. Suburban Propane Partners | Union Electric vs. SunOpta | Union Electric vs. Kinetik Holdings | Union Electric vs. Bridgford Foods |
| Xcel Energy vs. SPACE | Xcel Energy vs. Bayview Acquisition Corp | Xcel Energy vs. T Rowe Price | Xcel Energy vs. Ampleforth |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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