Correlation Between Edison International and Atlantica Sustainable

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

By analyzing existing cross correlation between Edison International and Atlantica Sustainable Infrastructure, you can compare the effects of market volatilities on Edison International and Atlantica Sustainable 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 Atlantica Sustainable. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edison International and Atlantica Sustainable.

Diversification Opportunities for Edison International and Atlantica Sustainable

0.33

Correlation Coefficient

Edison International  Atlantica Sustainable

Weak diversification

The 3 months correlation between Edison and Atlantica is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and Atlantica Sustainable Infrastr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Atlantica Sustainable 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 Atlantica Sustainable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Atlantica Sustainable has no effect on the direction of Edison International i.e., Edison International and Atlantica Sustainable go up and down completely randomly.

Pair Corralation between Edison International and Atlantica Sustainable

Considering the 90-day investment horizon Edison International is expected to generate 5.07 times less return on investment than Atlantica Sustainable. But when comparing it to its historical volatility, Edison International is 2.29 times less risky than Atlantica Sustainable. It trades about 0.05 of its potential returns per unit of risk. Atlantica Sustainable Infrastructure is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,867  in Atlantica Sustainable Infrastructure on January 31, 2024 and sell it today you would earn a total of  128.00  from holding Atlantica Sustainable Infrastructure or generate 6.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Edison International  vs.  Atlantica Sustainable Infrastr

Edison International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Edison International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Edison International may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Atlantica Sustainable

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Atlantica Sustainable Infrastructure are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Atlantica Sustainable may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Edison International and Atlantica Sustainable

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

The idea behind Edison International and Atlantica Sustainable Infrastructure 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.