Correlation Between Consolidated Edison and NextEra Energy

Can any of the company-specific risk be diversified away by investing in both Consolidated Edison and NextEra 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 NextEra 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 NextEra Energy, you can compare the effects of market volatilities on Consolidated Edison and NextEra 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 NextEra Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consolidated Edison and NextEra Energy.

Diversification Opportunities for Consolidated Edison and NextEra Energy

0.57

Correlation Coefficient

Consolidated Edison  NextEra Energy

Very weak diversification

The 3 months correlation between Consolidated and NextEra is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and NextEra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextEra 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 NextEra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextEra Energy has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and NextEra Energy go up and down completely randomly.

Pair Corralation between Consolidated Edison and NextEra Energy

Assuming the 90 days horizon Consolidated Edison is expected to generate 0.87 times more return on investment than NextEra Energy. However, Consolidated Edison is 1.16 times less risky than NextEra Energy. It trades about -0.04 of its potential returns per unit of risk. NextEra Energy is currently generating about -0.06 per unit of risk. If you would invest  9,314  in Consolidated Edison on September 14, 2024 and sell it today you would lose (336.00) from holding Consolidated Edison or give up 3.61% of portfolio value over 90 days.

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

Consolidated Edison  vs.  NextEra Energy

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. Despite nearly stable basic indicators, Consolidated Edison is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

NextEra Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NextEra Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Consolidated Edison and NextEra Energy

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

The idea behind Consolidated Edison and NextEra 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.

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.