Correlation Between NextEra Energy and Consolidated Edison

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

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

Diversification Opportunities for NextEra Energy and Consolidated Edison

0.3

Correlation Coefficient

NextEra Energy  Consolidated Edison

Weak diversification

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

Pair Corralation between NextEra Energy and Consolidated Edison

Assuming the 90 days horizon NextEra Energy is expected to under-perform the Consolidated Edison. In addition to that, NextEra Energy is 1.05 times more volatile than Consolidated Edison. It trades about -0.02 of its total potential returns per unit of risk. Consolidated Edison is currently generating about 0.06 per unit of volatility. If you would invest  9,169  in Consolidated Edison on December 4, 2024 and sell it today you would earn a total of  425.00  from holding Consolidated Edison or generate 4.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

NextEra Energy  vs.  Consolidated Edison

NextEra Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days NextEra Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NextEra Energy is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Consolidated Edison

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Consolidated Edison are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Consolidated Edison is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NextEra Energy and Consolidated Edison

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

The idea behind NextEra Energy and Consolidated Edison 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 Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.