Correlation Between Xcel Energy and National Grid
Can any of the company-specific risk be diversified away by investing in both Xcel Energy 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 Xcel Energy and National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xcel Energy and National Grid PLC, you can compare the effects of market volatilities on Xcel Energy 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 Xcel Energy with a short position of National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xcel Energy and National Grid.
Diversification Opportunities for Xcel Energy and National Grid
-0.42 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Xcel and National is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Xcel Energy 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 Xcel Energy 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 Xcel Energy 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 Xcel Energy i.e., Xcel Energy and National Grid go up and down completely randomly.
Pair Corralation between Xcel Energy and National Grid
Considering the 90-day investment horizon Xcel Energy is expected to generate 0.87 times more return on investment than National Grid. However, Xcel Energy is 1.15 times less risky than National Grid. It trades about 0.22 of its potential returns per unit of risk. National Grid PLC is currently generating about 0.1 per unit of risk. If you would invest 5,274 in Xcel Energy on August 24, 2024 and sell it today you would earn a total of 1,864 from holding Xcel Energy or generate 35.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Xcel Energy vs. National Grid PLC
Performance |
| Timeline |
| Xcel Energy |
| National Grid PLC |
Xcel Energy and National Grid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Xcel Energy and National Grid
The main advantage of trading using opposite Xcel Energy and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xcel Energy 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.| Xcel Energy vs. Alliant Energy Corp | Xcel Energy vs. Entergy | Xcel Energy vs. Pinnacle West Capital | Xcel Energy vs. CMS Energy |
| 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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