Correlation Between Prime Dividend and Energy Income

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

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

Diversification Opportunities for Prime Dividend and Energy Income

0.88

Correlation Coefficient

Prime Dividend  Energy Income

Very poor diversification

The 3 months correlation between Prime and Energy is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Prime Dividend Corp and Energy Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Income and Prime Dividend 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 Prime Dividend Corp are associated (or correlated) with Energy Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Income has no effect on the direction of Prime Dividend i.e., Prime Dividend and Energy Income go up and down completely randomly.

Pair Corralation between Prime Dividend and Energy Income

Assuming the 90 days trading horizon Prime Dividend Corp is expected to generate 0.84 times more return on investment than Energy Income. However, Prime Dividend Corp is 1.19 times less risky than Energy Income. It trades about 0.28 of its potential returns per unit of risk. Energy Income is currently generating about 0.08 per unit of risk. If you would invest  646.00  in Prime Dividend Corp on September 2, 2024 and sell it today you would earn a total of  220.00  from holding Prime Dividend Corp or generate 34.06% return on investment over 90 days.

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

Prime Dividend Corp  vs.  Energy Income

Prime Dividend Corp

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Dividend Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Prime Dividend displayed solid returns over the last few months and may actually be approaching a breakup point.

Energy Income

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Income are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating forward indicators, Energy Income may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prime Dividend and Energy Income

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

The idea behind Prime Dividend Corp and Energy Income 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.