Correlation Between Entergy Texas and Connecticut Light

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

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

Diversification Opportunities for Entergy Texas and Connecticut Light

0.5

Correlation Coefficient

Entergy Texas  Connecticut Light

Very weak diversification

The 3 months correlation between Entergy and Connecticut is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Entergy Texas and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light and Entergy Texas 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 Entergy Texas 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 Entergy Texas i.e., Entergy Texas and Connecticut Light go up and down completely randomly.

Pair Corralation between Entergy Texas and Connecticut Light

Assuming the 90 days horizon Entergy Texas is expected to under-perform the Connecticut Light. But the preferred stock apears to be less risky and, when comparing its historical volatility, Entergy Texas is 2.51 times less risky than Connecticut Light. The preferred stock trades about -0.22 of its potential returns per unit of risk. The The Connecticut Light is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  4,185  in The Connecticut Light on October 11, 2024 and sell it today you would lose (150.00) from holding The Connecticut Light or give up 3.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Entergy Texas  vs.  The Connecticut Light

Entergy Texas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Entergy Texas has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Entergy Texas is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail 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. In spite of latest weak performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Entergy Texas and Connecticut Light

The main advantage of trading using opposite Entergy Texas and Connecticut Light positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy Texas 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 Entergy Texas 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.