Correlation Between MGE Energy and Entergy

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

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

Diversification Opportunities for MGE Energy and Entergy

0.86

Correlation Coefficient

MGE Energy  Entergy

Very poor diversification

The 3 months correlation between MGE and Entergy is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding MGE Energy and Entergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy and MGE 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 MGE Energy are associated (or correlated) with Entergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy has no effect on the direction of MGE Energy i.e., MGE Energy and Entergy go up and down completely randomly.

Pair Corralation between MGE Energy and Entergy

Given the investment horizon of 90 days MGE Energy is expected to generate 1.31 times less return on investment than Entergy. But when comparing it to its historical volatility, MGE Energy is 1.41 times less risky than Entergy. It trades about 0.2 of its potential returns per unit of risk. Entergy is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  12,120  in Entergy on August 31, 2024 and sell it today you would earn a total of  3,520  from holding Entergy or generate 29.04% return on investment over 90 days.

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

MGE Energy  vs.  Entergy

MGE Energy

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MGE Energy are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, MGE Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Entergy

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Entergy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MGE Energy and Entergy

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

The idea behind MGE Energy and Entergy 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.