Correlation Between Entergy and Entergy Texas

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

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

Diversification Opportunities for Entergy and Entergy Texas

-0.3

Correlation Coefficient

Entergy  Entergy Texas

Very good diversification

The 3 months correlation between Entergy and Entergy is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Entergy and Entergy Texas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy Texas and Entergy 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 are associated (or correlated) with Entergy Texas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy Texas has no effect on the direction of Entergy i.e., Entergy and Entergy Texas go up and down completely randomly.

Pair Corralation between Entergy and Entergy Texas

Considering the 90-day investment horizon Entergy is expected to generate 1.7 times more return on investment than Entergy Texas. However, Entergy is 1.7 times more volatile than Entergy Texas. It trades about 0.08 of its potential returns per unit of risk. Entergy Texas is currently generating about 0.02 per unit of risk. If you would invest  4,606  in Entergy on October 9, 2024 and sell it today you would earn a total of  2,920  from holding Entergy or generate 63.4% return on investment over 90 days.

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

Entergy  vs.  Entergy Texas

Entergy

Risk-Adjusted Performance

9 of 100

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 uncertain basic indicators, Entergy reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Entergy and Entergy Texas

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

The idea behind Entergy and Entergy Texas 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.