Can any of the company-specific risk be diversified away by investing in both Public Service and Entergy Texas 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 Public Service and Entergy Texas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Public Service Enterprise and Entergy Texas, you can compare the effects of market volatilities on Public Service and Entergy Texas 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 Public Service with a short position of Entergy Texas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Public Service and Entergy Texas.
Diversification Opportunities for Public Service and Entergy Texas
The 3 months correlation between Public and Entergy is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Public Service Enterprise and Entergy Texas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy Texas and Public Service 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 Public Service Enterprise are associated (or correlated) with Entergy Texas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy Texas has no effect on the direction of Public Service i.e., Public Service and Entergy Texas go up and down completely randomly.
Pair Corralation between Public Service and Entergy Texas
Considering the 90-day investment horizon Public Service Enterprise is expected to generate 2.14 times more return on investment than Entergy Texas. However, Public Service is 2.14 times more volatile than Entergy Texas. It trades about 0.19 of its potential returns per unit of risk. Entergy Texas is currently generating about -0.25 per unit of risk. If you would invest 7,134 in Public Service Enterprise on March 6, 2024 and sell it today you would earn a total of 320.00 from holding Public Service Enterprise or generate 4.49% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Public Service Enterprise are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Public Service reported solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days Entergy Texas has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Entergy Texas is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.