Correlation Between Union Electric and Connecticut Light

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

By analyzing existing cross correlation between Union Electric and The Connecticut Light, you can compare the effects of market volatilities on Union Electric and Connecticut Light 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 Union Electric with a short position of Connecticut Light. Check out your portfolio center. Please also check ongoing floating volatility patterns of Union Electric and Connecticut Light.

Diversification Opportunities for Union Electric and Connecticut Light

0.11

Correlation Coefficient

Union Electric  Connecticut Light

Average diversification

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

Pair Corralation between Union Electric and Connecticut Light

Assuming the 90 days horizon Union Electric is expected to under-perform the Connecticut Light. In addition to that, Union Electric is 1.82 times more volatile than The Connecticut Light. It trades about -0.03 of its total potential returns per unit of risk. The Connecticut Light is currently generating about 0.05 per unit of volatility. If you would invest  3,595  in The Connecticut Light on December 2, 2024 and sell it today you would earn a total of  105.00  from holding The Connecticut Light or generate 2.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.12%
Values	Daily Returns

Union Electric  vs.  The Connecticut Light

Union Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Union Electric has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Union Electric is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Connecticut Light

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Connecticut Light are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Connecticut Light is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Union Electric and Connecticut Light

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

The idea behind Union Electric and The Connecticut Light 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.

Check out your portfolio center.

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.