Correlation Between Consolidated Edison and PGE

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

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

Diversification Opportunities for Consolidated Edison and PGE

-0.6

Correlation Coefficient

Consolidated Edison  PGE

Excellent diversification

The 3 months correlation between Consolidated and PGE is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and PGE Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGE Corporation 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 PGE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGE Corporation has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and PGE go up and down completely randomly.

Pair Corralation between Consolidated Edison and PGE

Assuming the 90 days horizon Consolidated Edison is expected to generate 0.75 times more return on investment than PGE. However, Consolidated Edison is 1.33 times less risky than PGE. It trades about 0.16 of its potential returns per unit of risk. PGE Corporation is currently generating about -0.11 per unit of risk. If you would invest  8,477  in Consolidated Edison on December 29, 2024 and sell it today you would earn a total of  1,477  from holding Consolidated Edison or generate 17.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Consolidated Edison  vs.  PGE Corp.

Consolidated Edison

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consolidated Edison are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Consolidated Edison reported solid returns over the last few months and may actually be approaching a breakup point.

PGE Corporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days PGE Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Consolidated Edison and PGE

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

The idea behind Consolidated Edison and PGE Corporation 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.