Correlation Between Connecticut Light and Duke Energy

Can any of the company-specific risk be diversified away by investing in both Connecticut Light and Duke 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 Connecticut Light and Duke Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Connecticut Light and Duke Energy, you can compare the effects of market volatilities on Connecticut Light and Duke 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 Connecticut Light with a short position of Duke Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Connecticut Light and Duke Energy.

Diversification Opportunities for Connecticut Light and Duke Energy

-0.1

Correlation Coefficient

Connecticut Light  Duke Energy

Good diversification

The 3 months correlation between Connecticut and Duke is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding The Connecticut Light and Duke Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Duke Energy and Connecticut Light 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 The Connecticut Light are associated (or correlated) with Duke Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Duke Energy has no effect on the direction of Connecticut Light i.e., Connecticut Light and Duke Energy go up and down completely randomly.

Pair Corralation between Connecticut Light and Duke Energy

Assuming the 90 days horizon Connecticut Light is expected to generate 7.48 times less return on investment than Duke Energy. But when comparing it to its historical volatility, The Connecticut Light is 2.71 times less risky than Duke Energy. It trades about 0.06 of its potential returns per unit of risk. Duke Energy is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  10,672  in Duke Energy on December 28, 2024 and sell it today you would earn a total of  1,269  from holding Duke Energy or generate 11.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

The Connecticut Light  vs.  Duke Energy

Connecticut Light

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Connecticut Light are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Connecticut Light is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Duke Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Duke Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Duke Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Connecticut Light and Duke Energy

The main advantage of trading using opposite Connecticut Light and Duke Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Connecticut Light position performs unexpectedly, Duke 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 Duke Energy will offset losses from the drop in Duke Energy's long position.

The idea behind The Connecticut Light and Duke 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.