Correlation Between Duke Energy and NewJersey Resources

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

By analyzing existing cross correlation between Duke Energy Corp and NewJersey Resources, you can compare the effects of market volatilities on Duke Energy and NewJersey Resources 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 NewJersey Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Duke Energy and NewJersey Resources.

Diversification Opportunities for Duke Energy and NewJersey Resources

-0.4

Correlation Coefficient

Duke Energy  NewJersey Resources

Very good diversification

The 3 months correlation between Duke and NewJersey is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy Corp and NewJersey Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewJersey Resources 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 Corp are associated (or correlated) with NewJersey Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewJersey Resources has no effect on the direction of Duke Energy i.e., Duke Energy and NewJersey Resources go up and down completely randomly.

Pair Corralation between Duke Energy and NewJersey Resources

Given the investment horizon of 90 days Duke Energy Corp is expected to under-perform the NewJersey Resources. But the stock apears to be less risky and, when comparing its historical volatility, Duke Energy Corp is 2.7 times less risky than NewJersey Resources. The stock trades about -0.08 of its potential returns per unit of risk. The NewJersey Resources is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  4,676  in NewJersey Resources on September 28, 2024 and sell it today you would lose (5.00) from holding NewJersey Resources or give up 0.11% of portfolio value over 90 days.

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

Duke Energy Corp  vs.  NewJersey Resources

Duke Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Duke Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward-looking signals, Duke Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

NewJersey Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NewJersey Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking indicators, NewJersey Resources 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 Duke Energy and NewJersey Resources

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

The idea behind Duke Energy Corp and NewJersey Resources 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.