Correlation Between Consolidated Edison and Xcel Energy

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

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

Diversification Opportunities for Consolidated Edison and Xcel Energy

0.81

Correlation Coefficient

Consolidated Edison  Xcel Energy

Very poor diversification

The 3 months correlation between Consolidated and Xcel is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and Xcel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel Energy 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 Xcel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Energy has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and Xcel Energy go up and down completely randomly.

Pair Corralation between Consolidated Edison and Xcel Energy

Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 1.13 times more return on investment than Xcel Energy. However, Consolidated Edison is 1.13 times more volatile than Xcel Energy. It trades about 0.25 of its potential returns per unit of risk. Xcel Energy is currently generating about 0.07 per unit of risk. If you would invest  8,837  in Consolidated Edison on December 29, 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.  Xcel Energy

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.

Xcel Energy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xcel Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Xcel Energy is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Consolidated Edison and Xcel Energy

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

The idea behind Consolidated Edison and Xcel Energy 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.