Correlation Between Consolidated Edison and Cadiz Depositary

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

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

Diversification Opportunities for Consolidated Edison and Cadiz Depositary

0.69

Correlation Coefficient

Consolidated Edison  Cadiz Depositary

Poor diversification

The 3 months correlation between Consolidated and Cadiz is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and Cadiz Depositary Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cadiz Depositary Shares and Consolidated Edison 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 Consolidated Edison are associated (or correlated) with Cadiz Depositary. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cadiz Depositary Shares has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and Cadiz Depositary go up and down completely randomly.

Pair Corralation between Consolidated Edison and Cadiz Depositary

Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 1.39 times more return on investment than Cadiz Depositary. However, Consolidated Edison is 1.39 times more volatile than Cadiz Depositary Shares. It trades about 0.24 of its potential returns per unit of risk. Cadiz Depositary Shares is currently generating about 0.14 per unit of risk. If you would invest  8,837  in Consolidated Edison on December 30, 2024 and sell it today you would earn a total of  2,040  from holding Consolidated Edison or generate 23.08% return on investment over 90 days.

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

Consolidated Edison  vs.  Cadiz Depositary Shares

Consolidated Edison

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Consolidated Edison are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Consolidated Edison exhibited solid returns over the last few months and may actually be approaching a breakup point.

Cadiz Depositary Shares

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cadiz Depositary Shares are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward indicators, Cadiz Depositary may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Consolidated Edison and Cadiz Depositary

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

The idea behind Consolidated Edison and Cadiz Depositary Shares 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.