Correlation Between Edison International and PacifiCorp

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

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

Diversification Opportunities for Edison International and PacifiCorp

-0.56

Correlation Coefficient

Edison International  PacifiCorp

Excellent diversification

The 3 months correlation between Edison and PacifiCorp is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and PacifiCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacifiCorp 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 PacifiCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacifiCorp has no effect on the direction of Edison International i.e., Edison International and PacifiCorp go up and down completely randomly.

Pair Corralation between Edison International and PacifiCorp

Considering the 90-day investment horizon Edison International is expected to under-perform the PacifiCorp. But the stock apears to be less risky and, when comparing its historical volatility, Edison International is 65.65 times less risky than PacifiCorp. The stock trades about -0.15 of its potential returns per unit of risk. The PacifiCorp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  100,000,000  in PacifiCorp on December 20, 2024 and sell it today you would lose (99,980,675) from holding PacifiCorp or give up 99.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	45.0%
Values	Daily Returns

Edison International  vs.  PacifiCorp

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.

PacifiCorp

Risk-Adjusted Performance

Good

Over the last 90 days PacifiCorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very fragile essential indicators, PacifiCorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Edison International and PacifiCorp

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

The idea behind Edison International and PacifiCorp 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.