Correlation Between Dominion Energy and Red Electrica

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

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

Diversification Opportunities for Dominion Energy and Red Electrica

0.08

Correlation Coefficient

Dominion Energy  Red Electrica

Significant diversification

The 3 months correlation between Dominion and Red is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Dominion Energy and Red Electrica Corporacion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Electrica Corporacion 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 Red Electrica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Electrica Corporacion has no effect on the direction of Dominion Energy i.e., Dominion Energy and Red Electrica go up and down completely randomly.

Pair Corralation between Dominion Energy and Red Electrica

Taking into account the 90-day investment horizon Dominion Energy is expected to generate 4.64 times less return on investment than Red Electrica. In addition to that, Dominion Energy is 1.38 times more volatile than Red Electrica Corporacion. It trades about 0.03 of its total potential returns per unit of risk. Red Electrica Corporacion is currently generating about 0.2 per unit of volatility. If you would invest  850.00  in Red Electrica Corporacion on December 28, 2024 and sell it today you would earn a total of  132.00  from holding Red Electrica Corporacion or generate 15.53% return on investment over 90 days.

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

Dominion Energy  vs.  Red Electrica Corporacion

Dominion Energy

Risk-Adjusted Performance

Weak

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

Red Electrica Corporacion

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Red Electrica Corporacion are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Red Electrica showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dominion Energy and Red Electrica

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

The idea behind Dominion Energy and Red Electrica Corporacion 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.