Correlation Between Edison International and Connecticut Light

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

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

Diversification Opportunities for Edison International and Connecticut Light

-0.17

Correlation Coefficient

Edison International  Connecticut Light

Good diversification

The 3 months correlation between Edison and Connecticut is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light 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 Connecticut Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connecticut Light has no effect on the direction of Edison International i.e., Edison International and Connecticut Light go up and down completely randomly.

Pair Corralation between Edison International and Connecticut Light

Considering the 90-day investment horizon Edison International is expected to generate 641.0 times less return on investment than Connecticut Light. But when comparing it to its historical volatility, Edison International is 3.57 times less risky than Connecticut Light. It trades about 0.0 of its potential returns per unit of risk. The Connecticut Light is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  5,500  in The Connecticut Light on October 26, 2024 and sell it today you would lose (200.00) from holding The Connecticut Light or give up 3.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	77.94%
Values	Daily Returns

Edison International  vs.  The Connecticut Light

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.

Connecticut Light

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Connecticut Light has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's technical indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Edison International and Connecticut Light

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

The idea behind Edison International and The Connecticut Light 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.