Correlation Between CDW Corp and Connecticut Light

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

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

Diversification Opportunities for CDW Corp and Connecticut Light

0.67

Correlation Coefficient

CDW Corp  Connecticut Light

Poor diversification

The 3 months correlation between CDW and Connecticut is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding CDW Corp and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light and CDW Corp 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 CDW Corp 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 CDW Corp i.e., CDW Corp and Connecticut Light go up and down completely randomly.

Pair Corralation between CDW Corp and Connecticut Light

Considering the 90-day investment horizon CDW Corp is expected to generate 0.61 times more return on investment than Connecticut Light. However, CDW Corp is 1.65 times less risky than Connecticut Light. It trades about 0.01 of its potential returns per unit of risk. The Connecticut Light is currently generating about 0.0 per unit of risk. If you would invest  17,484  in CDW Corp on September 14, 2024 and sell it today you would earn a total of  321.00  from holding CDW Corp or generate 1.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	81.17%
Values	Daily Returns

CDW Corp  vs.  The Connecticut Light

CDW Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CDW Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Connecticut Light

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with CDW Corp and Connecticut Light

The main advantage of trading using opposite CDW Corp and Connecticut Light positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CDW Corp 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 CDW Corp 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.