Correlation Between Connecticut Light and Rightsmile

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

Diversification Opportunities for Connecticut Light and Rightsmile

0.05

Correlation Coefficient

Connecticut Light  Rightsmile

Significant diversification

The 3 months correlation between Connecticut and Rightsmile is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding The Connecticut Light and Rightsmile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rightsmile 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 Rightsmile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rightsmile has no effect on the direction of Connecticut Light i.e., Connecticut Light and Rightsmile go up and down completely randomly.

Pair Corralation between Connecticut Light and Rightsmile

Assuming the 90 days horizon Connecticut Light is expected to generate 135.11 times less return on investment than Rightsmile. But when comparing it to its historical volatility, The Connecticut Light is 23.49 times less risky than Rightsmile. It trades about 0.04 of its potential returns per unit of risk. Rightsmile is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  0.00  in Rightsmile on September 4, 2024 and sell it today you would earn a total of  0.01  from holding Rightsmile or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

The Connecticut Light  vs.  Rightsmile

Connecticut Light

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Connecticut Light are ranked lower than 2 (%) 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.

Rightsmile

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rightsmile are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Rightsmile demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Connecticut Light and Rightsmile

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

The idea behind The Connecticut Light and Rightsmile 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.