Correlation Between Edison International and Avangrid

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

By analyzing existing cross correlation between Edison International and Avangrid, you can compare the effects of market volatilities on Edison International and Avangrid 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 Edison International with a short position of Avangrid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edison International and Avangrid.

Diversification Opportunities for Edison International and Avangrid

0.43

Correlation Coefficient

Edison International  Avangrid

Very weak diversification

The 3 months correlation between Edison and Avangrid is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and Avangrid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avangrid and Edison International 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 Edison International are associated (or correlated) with Avangrid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avangrid has no effect on the direction of Edison International i.e., Edison International and Avangrid go up and down completely randomly.

Pair Corralation between Edison International and Avangrid

Considering the 90-day investment horizon Edison International is expected to generate 4.43 times more return on investment than Avangrid. However, Edison International is 4.43 times more volatile than Avangrid. It trades about 0.03 of its potential returns per unit of risk. Avangrid is currently generating about 0.09 per unit of risk. If you would invest  8,654  in Edison International on September 3, 2024 and sell it today you would earn a total of  121.00  from holding Edison International or generate 1.4% return on investment over 90 days.

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

Edison International  vs.  Avangrid

Edison International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Edison International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, Edison International is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Avangrid

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avangrid are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Avangrid is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Edison International and Avangrid

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

The idea behind Edison International and Avangrid 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.