Correlation Between Connecticut Light and GAMCO Natural

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

Diversification Opportunities for Connecticut Light and GAMCO Natural

0.44

Correlation Coefficient

Connecticut Light  GAMCO Natural

Very weak diversification

The 3 months correlation between Connecticut and GAMCO is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding The Connecticut Light and GAMCO Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GAMCO Natural Resources 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 GAMCO Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GAMCO Natural Resources has no effect on the direction of Connecticut Light i.e., Connecticut Light and GAMCO Natural go up and down completely randomly.

Pair Corralation between Connecticut Light and GAMCO Natural

Assuming the 90 days horizon The Connecticut Light is expected to under-perform the GAMCO Natural. But the pink sheet apears to be less risky and, when comparing its historical volatility, The Connecticut Light is 1.38 times less risky than GAMCO Natural. The pink sheet trades about -0.12 of its potential returns per unit of risk. The GAMCO Natural Resources is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,216  in GAMCO Natural Resources on October 6, 2024 and sell it today you would lose (22.00) from holding GAMCO Natural Resources or give up 0.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

The Connecticut Light  vs.  GAMCO Natural Resources

Connecticut Light

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Connecticut Light are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical indicators, Connecticut Light reported solid returns over the last few months and may actually be approaching a breakup point.

GAMCO Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GAMCO Natural Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Preferred Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Connecticut Light and GAMCO Natural

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

The idea behind The Connecticut Light and GAMCO Natural Resources 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.