Correlation Between Consolidated Edison and NewJersey Resources

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

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

Diversification Opportunities for Consolidated Edison and NewJersey Resources

-0.4

Correlation Coefficient

Consolidated Edison  NewJersey Resources

Very good diversification

The 3 months correlation between Consolidated and NewJersey is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and NewJersey Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewJersey Resources 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 NewJersey Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewJersey Resources has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and NewJersey Resources go up and down completely randomly.

Pair Corralation between Consolidated Edison and NewJersey Resources

Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 1.13 times less return on investment than NewJersey Resources. But when comparing it to its historical volatility, Consolidated Edison is 1.12 times less risky than NewJersey Resources. It trades about 0.01 of its potential returns per unit of risk. NewJersey Resources is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,613  in NewJersey Resources on September 13, 2024 and sell it today you would earn a total of  170.00  from holding NewJersey Resources or generate 3.69% return on investment over 90 days.

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

Consolidated Edison  vs.  NewJersey Resources

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 latest conflicting performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

NewJersey Resources

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NewJersey Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking indicators, NewJersey Resources is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Consolidated Edison and NewJersey Resources

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

The idea behind Consolidated Edison and NewJersey Resources 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.