Correlation Between Consolidated Edison and Ameren Corp

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

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

Diversification Opportunities for Consolidated Edison and Ameren Corp

0.88

Correlation Coefficient

Consolidated Edison  Ameren Corp

Very poor diversification

The 3 months correlation between Consolidated and Ameren is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and Ameren Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameren Corp and Consolidated Edison 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 Consolidated Edison are associated (or correlated) with Ameren Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameren Corp has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and Ameren Corp go up and down completely randomly.

Pair Corralation between Consolidated Edison and Ameren Corp

Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 0.89 times more return on investment than Ameren Corp. However, Consolidated Edison is 1.12 times less risky than Ameren Corp. It trades about 0.01 of its potential returns per unit of risk. Ameren Corp is currently generating about -0.02 per unit of risk. If you would invest  9,129  in Consolidated Edison on February 23, 2024 and sell it today you would earn a total of  484.00  from holding Consolidated Edison or generate 5.3% return on investment over 90 days.

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

Consolidated Edison  vs.  Ameren Corp

Consolidated Edison

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consolidated Edison are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Consolidated Edison may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Ameren Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ameren Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Ameren Corp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Consolidated Edison and Ameren Corp

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

The idea behind Consolidated Edison and Ameren Corp 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.