Correlation Between Connecticut Light and Alliant Energy

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

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

Diversification Opportunities for Connecticut Light and Alliant Energy

0.33

Correlation Coefficient

Connecticut Light  Alliant Energy

Weak diversification

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

Pair Corralation between Connecticut Light and Alliant Energy

Assuming the 90 days horizon The Connecticut Light is expected to under-perform the Alliant Energy. But the pink sheet apears to be less risky and, when comparing its historical volatility, The Connecticut Light is 1.27 times less risky than Alliant Energy. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Alliant Energy Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,920  in Alliant Energy Corp on March 29, 2024 and sell it today you would earn a total of  126.00  from holding Alliant Energy Corp or generate 2.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.72%
Values	Daily Returns

The Connecticut Light  vs.  Alliant Energy Corp

Connecticut Light

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Connecticut Light has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Connecticut Light is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Alliant Energy Corp

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alliant Energy Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Alliant Energy is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Connecticut Light and Alliant Energy

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

The idea behind The Connecticut Light and Alliant Energy 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.