Correlation Between National Grid and CLP Holdings

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

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

Diversification Opportunities for National Grid and CLP Holdings

0.54

Correlation Coefficient

National Grid  CLP Holdings

Very weak diversification

The 3 months correlation between National and CLP is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding National Grid PLC and CLP Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CLP Holdings and National Grid 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 National Grid PLC are associated (or correlated) with CLP Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CLP Holdings has no effect on the direction of National Grid i.e., National Grid and CLP Holdings go up and down completely randomly.

Pair Corralation between National Grid and CLP Holdings

Considering the 90-day investment horizon National Grid PLC is expected to under-perform the CLP Holdings. In addition to that, National Grid is 1.39 times more volatile than CLP Holdings. It trades about -0.1 of its total potential returns per unit of risk. CLP Holdings is currently generating about -0.08 per unit of volatility. If you would invest  860.00  in CLP Holdings on October 26, 2024 and sell it today you would lose (37.00) from holding CLP Holdings or give up 4.3% of portfolio value over 90 days.

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

National Grid PLC  vs.  CLP Holdings

National Grid PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Grid PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

CLP Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CLP Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, CLP Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with National Grid and CLP Holdings

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

The idea behind National Grid PLC and CLP Holdings 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 Stocks Directory module to find actively traded stocks across global markets.