Correlation Between Edison International and Emera Incorporated
Can any of the company-specific risk be diversified away by investing in both Edison International and Emera Incorporated 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 Edison International and Emera Incorporated into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Edison International and Emera Incorporated, you can compare the effects of market volatilities on Edison International and Emera Incorporated 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 Edison International with a short position of Emera Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edison International and Emera Incorporated.
Diversification Opportunities for Edison International and Emera Incorporated
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Edison and Emera is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and Emera Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emera Incorporated and Edison International 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 Edison International are associated (or correlated) with Emera Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emera Incorporated has no effect on the direction of Edison International i.e., Edison International and Emera Incorporated go up and down completely randomly.
Pair Corralation between Edison International and Emera Incorporated
Considering the 90-day investment horizon Edison International is expected to generate 1.65 times more return on investment than Emera Incorporated. However, Edison International is 1.65 times more volatile than Emera Incorporated. It trades about 0.06 of its potential returns per unit of risk. Emera Incorporated is currently generating about -0.2 per unit of risk. If you would invest 6,871 in Edison International on January 20, 2024 and sell it today you would earn a total of 122.00 from holding Edison International or generate 1.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Edison International vs. Emera Incorporated
Performance |
| Timeline |
| Edison International |
| Emera Incorporated |
Edison International and Emera Incorporated Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Edison International and Emera Incorporated
The main advantage of trading using opposite Edison International and Emera Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edison International position performs unexpectedly, Emera Incorporated 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 Emera Incorporated will offset losses from the drop in Emera Incorporated's long position.The idea behind Edison International and Emera Incorporated 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.| Emera Incorporated vs. Entergy New Orleans | Emera Incorporated vs. Southern Co | Emera Incorporated vs. Entergy New Orleans |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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