Correlation Between Dominion Energy and Verde Clean

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

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

Diversification Opportunities for Dominion Energy and Verde Clean

0.49

Correlation Coefficient

Dominion Energy  Verde Clean

Very weak diversification

The 3 months correlation between Dominion and Verde is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Dominion Energy and Verde Clean Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verde Clean Fuels 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 Verde Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verde Clean Fuels has no effect on the direction of Dominion Energy i.e., Dominion Energy and Verde Clean go up and down completely randomly.

Pair Corralation between Dominion Energy and Verde Clean

Taking into account the 90-day investment horizon Dominion Energy is expected to generate 0.44 times more return on investment than Verde Clean. However, Dominion Energy is 2.25 times less risky than Verde Clean. It trades about 0.01 of its potential returns per unit of risk. Verde Clean Fuels is currently generating about 0.0 per unit of risk. If you would invest  5,666  in Dominion Energy on December 1, 2024 and sell it today you would lose (4.00) from holding Dominion Energy or give up 0.07% of portfolio value over 90 days.

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

Dominion Energy  vs.  Verde Clean Fuels

Dominion Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dominion Energy has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Verde Clean Fuels

Risk-Adjusted Performance

Very Weak

Over the last 90 days Verde Clean Fuels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Verde Clean is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Dominion Energy and Verde Clean

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

The idea behind Dominion Energy and Verde Clean Fuels 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.