Correlation Between Dominion Energy and Avangrid

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

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

Diversification Opportunities for Dominion Energy and Avangrid

0.25

Correlation Coefficient

Dominion Energy  Avangrid

Modest diversification

The 3 months correlation between Dominion and Avangrid is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Dominion Energy and Avangrid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avangrid and Dominion 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 Dominion Energy are associated (or correlated) with Avangrid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avangrid has no effect on the direction of Dominion Energy i.e., Dominion Energy and Avangrid go up and down completely randomly.

Pair Corralation between Dominion Energy and Avangrid

Taking into account the 90-day investment horizon Dominion Energy is expected to generate 5.9 times more return on investment than Avangrid. However, Dominion Energy is 5.9 times more volatile than Avangrid. It trades about 0.06 of its potential returns per unit of risk. Avangrid is currently generating about 0.09 per unit of risk. If you would invest  5,610  in Dominion Energy on September 2, 2024 and sell it today you would earn a total of  265.00  from holding Dominion Energy or generate 4.72% return on investment over 90 days.

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

Dominion Energy  vs.  Avangrid

Dominion Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dominion Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Dominion Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Avangrid

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avangrid are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Avangrid is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Dominion Energy and Avangrid

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

The idea behind Dominion Energy and Avangrid 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 CEOs Directory module to screen CEOs from public companies around the world.