Correlation Between Talen Energy and WEC Energy

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

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

Diversification Opportunities for Talen Energy and WEC Energy

-0.11

Correlation Coefficient

Talen Energy  WEC Energy

Good diversification

The 3 months correlation between Talen and WEC is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Talen Energy and WEC Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEC Energy Group and Talen 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 Talen Energy are associated (or correlated) with WEC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEC Energy Group has no effect on the direction of Talen Energy i.e., Talen Energy and WEC Energy go up and down completely randomly.

Pair Corralation between Talen Energy and WEC Energy

Considering the 90-day investment horizon Talen Energy is expected to generate 3.76 times more return on investment than WEC Energy. However, Talen Energy is 3.76 times more volatile than WEC Energy Group. It trades about 0.04 of its potential returns per unit of risk. WEC Energy Group is currently generating about 0.16 per unit of risk. If you would invest  20,639  in Talen Energy on December 26, 2024 and sell it today you would earn a total of  1,134  from holding Talen Energy or generate 5.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Talen Energy  vs.  WEC Energy Group

Talen Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Talen Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile essential indicators, Talen Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

WEC Energy Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WEC Energy Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, WEC Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Talen Energy and WEC Energy

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

The idea behind Talen Energy and WEC Energy Group 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.