Correlation Between Edison International and Entergy

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

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

Diversification Opportunities for Edison International and Entergy

-0.7

Correlation Coefficient

Edison International  Entergy

Excellent diversification

The 3 months correlation between Edison and Entergy is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and Entergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy 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 Entergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy has no effect on the direction of Edison International i.e., Edison International and Entergy go up and down completely randomly.

Pair Corralation between Edison International and Entergy

Considering the 90-day investment horizon Edison International is expected to under-perform the Entergy. In addition to that, Edison International is 1.79 times more volatile than Entergy. It trades about -0.15 of its total potential returns per unit of risk. Entergy is currently generating about 0.12 per unit of volatility. If you would invest  7,520  in Entergy on December 28, 2024 and sell it today you would earn a total of  921.00  from holding Entergy or generate 12.25% return on investment over 90 days.

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

Edison International  vs.  Entergy

Edison International

Risk-Adjusted Performance

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 April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Entergy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Entergy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Edison International and Entergy

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

The idea behind Edison International and Entergy 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..