Correlation Between Union Electric and Avangrid

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

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

Diversification Opportunities for Union Electric and Avangrid

0.31

Correlation Coefficient

Union Electric  Avangrid

Weak diversification

The 3 months correlation between Union and Avangrid is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Union Electric and Avangrid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avangrid and Union Electric 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 Union Electric are associated (or correlated) with Avangrid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avangrid has no effect on the direction of Union Electric i.e., Union Electric and Avangrid go up and down completely randomly.

Pair Corralation between Union Electric and Avangrid

Assuming the 90 days horizon Union Electric is expected to generate 12.31 times more return on investment than Avangrid. However, Union Electric is 12.31 times more volatile than Avangrid. It trades about 0.04 of its potential returns per unit of risk. Avangrid is currently generating about 0.07 per unit of risk. If you would invest  10,500  in Union Electric on September 16, 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 Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Union Electric  vs.  Avangrid

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 weak fundamental indicators, Union Electric may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Avangrid

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avangrid are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Avangrid is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Union Electric and Avangrid

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

The idea behind Union Electric and Avangrid 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.