Correlation Between Connecticut Light and Edison International

Can any of the company-specific risk be diversified away by investing in both Connecticut Light and Edison International 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 Edison International 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 Edison International, you can compare the effects of market volatilities on Connecticut Light and Edison International 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 Edison International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Connecticut Light and Edison International.

Diversification Opportunities for Connecticut Light and Edison International

-0.13

Correlation Coefficient

Connecticut Light  Edison International

Good diversification

The 3 months correlation between Connecticut and Edison is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding The Connecticut Light and Edison International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edison International 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 Edison International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edison International has no effect on the direction of Connecticut Light i.e., Connecticut Light and Edison International go up and down completely randomly.

Pair Corralation between Connecticut Light and Edison International

Assuming the 90 days horizon The Connecticut Light is expected to generate 0.78 times more return on investment than Edison International. However, The Connecticut Light is 1.28 times less risky than Edison International. It trades about -0.03 of its potential returns per unit of risk. Edison International is currently generating about -0.21 per unit of risk. If you would invest  4,300  in The Connecticut Light on October 26, 2024 and sell it today you would lose (231.00) from holding The Connecticut Light or give up 5.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

The Connecticut Light  vs.  Edison International

Connecticut Light

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Connecticut Light has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Connecticut Light is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Edison International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Edison International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Connecticut Light and Edison International

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

The idea behind The Connecticut Light and Edison International 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.