Correlation Between Dominion Energy and Connecticut Light

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

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

Diversification Opportunities for Dominion Energy and Connecticut Light

0.28

Correlation Coefficient

Dominion Energy  Connecticut Light

Modest diversification

The 3 months correlation between Dominion and Connecticut is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Dominion Energy and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light and Dominion 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 Dominion Energy 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 Dominion Energy i.e., Dominion Energy and Connecticut Light go up and down completely randomly.

Pair Corralation between Dominion Energy and Connecticut Light

Taking into account the 90-day investment horizon Dominion Energy is expected to under-perform the Connecticut Light. But the stock apears to be less risky and, when comparing its historical volatility, Dominion Energy is 1.27 times less risky than Connecticut Light. The stock trades about -0.06 of its potential returns per unit of risk. The The Connecticut Light is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,401  in The Connecticut Light on September 13, 2024 and sell it today you would earn a total of  199.00  from holding The Connecticut Light or generate 4.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Dominion Energy  vs.  The Connecticut Light

Dominion Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dominion Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Dominion Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Connecticut Light

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Connecticut Light are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 Dominion Energy and Connecticut Light

The main advantage of trading using opposite Dominion Energy and Connecticut Light positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dominion Energy 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 Dominion Energy 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.