Correlation Between Consolidated Edison and Hawaiian Electric

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

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

Diversification Opportunities for Consolidated Edison and Hawaiian Electric

0.84

Correlation Coefficient

Consolidated Edison  Hawaiian Electric

Very poor diversification

The 3 months correlation between Consolidated and Hawaiian is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and Hawaiian Electric Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawaiian Electric 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 Hawaiian Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawaiian Electric has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and Hawaiian Electric go up and down completely randomly.

Pair Corralation between Consolidated Edison and Hawaiian Electric

Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 0.48 times more return on investment than Hawaiian Electric. However, Consolidated Edison is 2.1 times less risky than Hawaiian Electric. It trades about 0.24 of its potential returns per unit of risk. Hawaiian Electric Industries is currently generating about 0.09 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	Strong
Accuracy	100.0%
Values	Daily Returns

Consolidated Edison  vs.  Hawaiian Electric Industries

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.

Hawaiian Electric

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hawaiian Electric Industries are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Hawaiian Electric exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Consolidated Edison and Hawaiian Electric

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

The idea behind Consolidated Edison and Hawaiian Electric Industries 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.