Correlation Between Utilities Fund and Dominion Energy

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

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

Diversification Opportunities for Utilities Fund and Dominion Energy

0.68

Correlation Coefficient

Utilities Fund  Dominion Energy

Poor diversification

The 3 months correlation between Utilities and Dominion is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Utilities Fund Class and Dominion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominion Energy and Utilities Fund 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 Utilities Fund Class are associated (or correlated) with Dominion Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominion Energy has no effect on the direction of Utilities Fund i.e., Utilities Fund and Dominion Energy go up and down completely randomly.

Pair Corralation between Utilities Fund and Dominion Energy

Assuming the 90 days horizon Utilities Fund Class is expected to generate 0.59 times more return on investment than Dominion Energy. However, Utilities Fund Class is 1.69 times less risky than Dominion Energy. It trades about 0.07 of its potential returns per unit of risk. Dominion Energy is currently generating about 0.04 per unit of risk. If you would invest  5,057  in Utilities Fund Class on December 29, 2024 and sell it today you would earn a total of  217.00  from holding Utilities Fund Class or generate 4.29% return on investment over 90 days.

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

Utilities Fund Class  vs.  Dominion Energy

Utilities Fund Class

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Fund Class are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Utilities Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dominion Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dominion Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Dominion Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Utilities Fund and Dominion Energy

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

The idea behind Utilities Fund Class and Dominion Energy 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.