Correlation Between Avangrid and Dominion Energy

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

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

Diversification Opportunities for Avangrid and Dominion Energy

0.91

Correlation Coefficient

Avangrid  Dominion Energy

Almost no diversification

The 3 months correlation between Avangrid and Dominion is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Avangrid and Dominion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominion Energy and Avangrid 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 Avangrid are associated (or correlated) with Dominion Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominion Energy has no effect on the direction of Avangrid i.e., Avangrid and Dominion Energy go up and down completely randomly.

Pair Corralation between Avangrid and Dominion Energy

Considering the 90-day investment horizon Avangrid is expected to generate 1.12 times more return on investment than Dominion Energy. However, Avangrid is 1.12 times more volatile than Dominion Energy. It trades about -0.01 of its potential returns per unit of risk. Dominion Energy is currently generating about -0.02 per unit of risk. If you would invest  3,901  in Avangrid on January 20, 2024 and sell it today you would lose (277.00) from holding Avangrid or give up 7.1% of portfolio value over 90 days.

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

Avangrid  vs.  Dominion Energy

Avangrid

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Avangrid are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain technical and fundamental indicators, Avangrid reported solid returns over the last few months and may actually be approaching a breakup point.

Dominion Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dominion Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Dominion Energy may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Avangrid and Dominion Energy

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

The idea behind Avangrid and Dominion 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.