Correlation Between Consolidated Edison and PGE Corp

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

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

Diversification Opportunities for Consolidated Edison and PGE Corp

-0.36

Correlation Coefficient

Consolidated Edison  PGE Corp

Very good diversification

The 3 months correlation between Consolidated and PGE is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and PGE Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGE Corp and Consolidated Edison 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 Consolidated Edison are associated (or correlated) with PGE Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGE Corp has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and PGE Corp go up and down completely randomly.

Pair Corralation between Consolidated Edison and PGE Corp

Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 1.89 times less return on investment than PGE Corp. But when comparing it to its historical volatility, Consolidated Edison is 1.15 times less risky than PGE Corp. It trades about 0.04 of its potential returns per unit of risk. PGE Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,684  in PGE Corp on September 1, 2024 and sell it today you would earn a total of  479.00  from holding PGE Corp or generate 28.44% return on investment over 90 days.

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

Consolidated Edison  vs.  PGE Corp

Consolidated Edison

Risk-Adjusted Performance

0 of 100

Very Weak

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

PGE Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PGE Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady fundamental indicators, PGE Corp may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Consolidated Edison and PGE Corp

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

The idea behind Consolidated Edison and PGE Corp 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.