Correlation Between Edison International and MGE Energy

Can any of the company-specific risk be diversified away by investing in both Edison International and MGE 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 MGE 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 MGE Energy, you can compare the effects of market volatilities on Edison International and MGE 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 MGE Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edison International and MGE Energy.

Diversification Opportunities for Edison International and MGE Energy

0.51

Correlation Coefficient

Edison International  MGE Energy

Very weak diversification

The 3 months correlation between Edison and MGE is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and MGE Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGE 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 MGE Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGE Energy has no effect on the direction of Edison International i.e., Edison International and MGE Energy go up and down completely randomly.

Pair Corralation between Edison International and MGE Energy

Considering the 90-day investment horizon Edison International is expected to under-perform the MGE Energy. In addition to that, Edison International is 1.86 times more volatile than MGE Energy. It trades about -0.16 of its total potential returns per unit of risk. MGE Energy is currently generating about -0.03 per unit of volatility. If you would invest  9,462  in MGE Energy on December 27, 2024 and sell it today you would lose (362.00) from holding MGE Energy or give up 3.83% 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.  MGE Energy

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.

MGE Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days MGE Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, MGE Energy is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Edison International and MGE Energy

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

The idea behind Edison International and MGE 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.