Correlation Between Edison International and Consumers Energy

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

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

Diversification Opportunities for Edison International and Consumers Energy

0.54

Correlation Coefficient

Edison International  Consumers Energy

Very weak diversification

The 3 months correlation between Edison and Consumers is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and Consumers Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumers Energy 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 Consumers Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumers Energy has no effect on the direction of Edison International i.e., Edison International and Consumers Energy go up and down completely randomly.

Pair Corralation between Edison International and Consumers Energy

Considering the 90-day investment horizon Edison International is expected to under-perform the Consumers Energy. In addition to that, Edison International is 2.25 times more volatile than Consumers Energy. It trades about -0.32 of its total potential returns per unit of risk. Consumers Energy is currently generating about -0.23 per unit of volatility. If you would invest  8,099  in Consumers Energy on October 11, 2024 and sell it today you would lose (409.00) from holding Consumers Energy or give up 5.05% of portfolio value over 90 days.

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

Edison International  vs.  Consumers Energy

Edison International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Edison International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Consumers Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Edison International and Consumers Energy

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

The idea behind Edison International and Consumers 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 Transaction History module to view history of all your transactions and understand their impact on performance.