Correlation Between Nextera Energy and SCE Trust

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

By analyzing existing cross correlation between Nextera Energy and SCE Trust III, you can compare the effects of market volatilities on Nextera Energy and SCE Trust 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 SCE Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nextera Energy and SCE Trust.

Diversification Opportunities for Nextera Energy and SCE Trust

-0.61

Correlation Coefficient

Nextera Energy  SCE Trust

Excellent diversification

The 3 months correlation between Nextera and SCE is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy and SCE Trust III in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCE Trust III 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 SCE Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCE Trust III has no effect on the direction of Nextera Energy i.e., Nextera Energy and SCE Trust go up and down completely randomly.

Pair Corralation between Nextera Energy and SCE Trust

Considering the 90-day investment horizon Nextera Energy is expected to under-perform the SCE Trust. In addition to that, Nextera Energy is 36.06 times more volatile than SCE Trust III. It trades about -0.01 of its total potential returns per unit of risk. SCE Trust III is currently generating about 0.46 per unit of volatility. If you would invest  2,529  in SCE Trust III on August 30, 2024 and sell it today you would earn a total of  12.00  from holding SCE Trust III or generate 0.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Nextera Energy  vs.  SCE Trust III

Nextera Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

SCE Trust III

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SCE Trust III are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, SCE Trust is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Nextera Energy and SCE Trust

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

The idea behind Nextera Energy and SCE Trust III 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.