Correlation Between Consolidated Edison and Connecticut Light

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

By analyzing existing cross correlation between Consolidated Edison and The Connecticut Light, you can compare the effects of market volatilities on Consolidated Edison and Connecticut Light 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 Connecticut Light. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consolidated Edison and Connecticut Light.

Diversification Opportunities for Consolidated Edison and Connecticut Light

0.9

Correlation Coefficient

Consolidated Edison  Connecticut Light

Almost no diversification

The 3 months correlation between Consolidated and Connecticut is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light 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 Connecticut Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connecticut Light has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and Connecticut Light go up and down completely randomly.

Pair Corralation between Consolidated Edison and Connecticut Light

Allowing for the 90-day total investment horizon Consolidated Edison is expected to under-perform the Connecticut Light. In addition to that, Consolidated Edison is 1.08 times more volatile than The Connecticut Light. It trades about -0.21 of its total potential returns per unit of risk. The Connecticut Light is currently generating about -0.11 per unit of volatility. If you would invest  3,422  in The Connecticut Light on October 24, 2024 and sell it today you would lose (217.00) from holding The Connecticut Light or give up 6.34% of portfolio value over 90 days.

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

Consolidated Edison  vs.  The Connecticut Light

Consolidated Edison

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consolidated Edison has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Connecticut Light

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Connecticut Light has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Consolidated Edison and Connecticut Light

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

The idea behind Consolidated Edison and The Connecticut Light 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.