Correlation Between Xcel Energy and Eversource Energy

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

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

Diversification Opportunities for Xcel Energy and Eversource Energy

-0.7

Correlation Coefficient

Xcel Energy  Eversource Energy

Excellent diversification

The 3 months correlation between Xcel and Eversource is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Xcel Energy and Eversource Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eversource Energy and Xcel 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 Xcel Energy are associated (or correlated) with Eversource Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eversource Energy has no effect on the direction of Xcel Energy i.e., Xcel Energy and Eversource Energy go up and down completely randomly.

Pair Corralation between Xcel Energy and Eversource Energy

Considering the 90-day investment horizon Xcel Energy is expected to under-perform the Eversource Energy. But the stock apears to be less risky and, when comparing its historical volatility, Xcel Energy is 1.18 times less risky than Eversource Energy. The stock trades about -0.04 of its potential returns per unit of risk. The Eversource Energy is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  6,943  in Eversource Energy on January 19, 2024 and sell it today you would lose (1,044) from holding Eversource Energy or give up 15.04% of portfolio value over 90 days.

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

Xcel Energy  vs.  Eversource Energy

Xcel Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xcel Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Eversource Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eversource Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Eversource Energy may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Xcel Energy and Eversource Energy

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

The idea behind Xcel Energy and Eversource 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.