Correlation Between Xcel Energy and VERBUND AG

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

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

Diversification Opportunities for Xcel Energy and VERBUND AG

-0.26

Correlation Coefficient

Xcel Energy  VERBUND AG

Very good diversification

The 3 months correlation between Xcel and VERBUND is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Xcel Energy and VERBUND AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VERBUND AG and Xcel 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 Xcel Energy are associated (or correlated) with VERBUND AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VERBUND AG has no effect on the direction of Xcel Energy i.e., Xcel Energy and VERBUND AG go up and down completely randomly.

Pair Corralation between Xcel Energy and VERBUND AG

Assuming the 90 days horizon Xcel Energy is expected to under-perform the VERBUND AG. But the stock apears to be less risky and, when comparing its historical volatility, Xcel Energy is 1.85 times less risky than VERBUND AG. The stock trades about -0.16 of its potential returns per unit of risk. The VERBUND AG is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  7,215  in VERBUND AG on October 10, 2024 and sell it today you would lose (120.00) from holding VERBUND AG or give up 1.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Xcel Energy  vs.  VERBUND AG

Xcel Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xcel Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xcel Energy reported solid returns over the last few months and may actually be approaching a breakup point.

VERBUND AG

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Xcel Energy and VERBUND AG

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

The idea behind Xcel Energy and VERBUND AG 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.