Correlation Between Duke Energy and Union Electric

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

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

Diversification Opportunities for Duke Energy and Union Electric

-0.39

Correlation Coefficient

Duke Energy  Union Electric

Very good diversification

The 3 months correlation between Duke and Union is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy and Union Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Electric and Duke 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 Duke Energy are associated (or correlated) with Union Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Electric has no effect on the direction of Duke Energy i.e., Duke Energy and Union Electric go up and down completely randomly.

Pair Corralation between Duke Energy and Union Electric

Considering the 90-day investment horizon Duke Energy is expected to under-perform the Union Electric. But the stock apears to be less risky and, when comparing its historical volatility, Duke Energy is 2.15 times less risky than Union Electric. The stock trades about -0.09 of its potential returns per unit of risk. The Union Electric is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  10,500  in Union Electric on September 15, 2024 and sell it today you would earn a total of  500.00  from holding Union Electric or generate 4.76% return on investment over 90 days.

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

Duke Energy  vs.  Union Electric

Duke Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Duke Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Union Electric

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Union Electric are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Union Electric may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Duke Energy and Union Electric

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

The idea behind Duke Energy and Union Electric 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.