Correlation Between Consolidated Edison and Talen Energy

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

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

Diversification Opportunities for Consolidated Edison and Talen Energy

-0.6

Correlation Coefficient

Consolidated Edison  Talen Energy

Excellent diversification

The 3 months correlation between Consolidated and Talen is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and Talen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talen Energy 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 Talen Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talen Energy has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and Talen Energy go up and down completely randomly.

Pair Corralation between Consolidated Edison and Talen Energy

Allowing for the 90-day total investment horizon Consolidated Edison is expected to under-perform the Talen Energy. But the stock apears to be less risky and, when comparing its historical volatility, Consolidated Edison is 3.22 times less risky than Talen Energy. The stock trades about -0.21 of its potential returns per unit of risk. The Talen Energy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  17,824  in Talen Energy on September 29, 2024 and sell it today you would earn a total of  2,188  from holding Talen Energy or generate 12.28% return on investment over 90 days.

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

Consolidated Edison  vs.  Talen Energy

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 conflicting performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Talen Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Talen Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady essential indicators, Talen Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Consolidated Edison and Talen Energy

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

The idea behind Consolidated Edison and Talen Energy 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.