Correlation Between Duke Energy and National Grid

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

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

Diversification Opportunities for Duke Energy and National Grid

0.44

Correlation Coefficient

Duke Energy  National Grid

Very weak diversification

The 3 months correlation between Duke and National is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy and National Grid PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid PLC and Duke 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 Duke Energy are associated (or correlated) with National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid PLC has no effect on the direction of Duke Energy i.e., Duke Energy and National Grid go up and down completely randomly.

Pair Corralation between Duke Energy and National Grid

Considering the 90-day investment horizon Duke Energy is expected to generate 1.02 times less return on investment than National Grid. But when comparing it to its historical volatility, Duke Energy is 1.25 times less risky than National Grid. It trades about 0.04 of its potential returns per unit of risk. National Grid PLC is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,302  in National Grid PLC on September 4, 2024 and sell it today you would earn a total of  1,036  from holding National Grid PLC or generate 19.54% return on investment over 90 days.

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

Duke Energy  vs.  National Grid PLC

Duke Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Duke Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Duke Energy is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

National Grid PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Grid PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, National Grid is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Duke Energy and National Grid

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

The idea behind Duke Energy and National Grid PLC 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.