Correlation Between Consumers Energy and Red Electrica

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

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

Diversification Opportunities for Consumers Energy and Red Electrica

-0.25

Correlation Coefficient

Consumers Energy  Red Electrica

Very good diversification

The 3 months correlation between Consumers and Red is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Consumers Energy and Red Electrica Corporacion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Electrica Corporacion and Consumers 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 Consumers Energy are associated (or correlated) with Red Electrica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Electrica Corporacion has no effect on the direction of Consumers Energy i.e., Consumers Energy and Red Electrica go up and down completely randomly.

Pair Corralation between Consumers Energy and Red Electrica

Assuming the 90 days trading horizon Consumers Energy is expected to under-perform the Red Electrica. But the preferred stock apears to be less risky and, when comparing its historical volatility, Consumers Energy is 1.34 times less risky than Red Electrica. The preferred stock trades about -0.02 of its potential returns per unit of risk. The Red Electrica Corporacion is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  847.00  in Red Electrica Corporacion on February 12, 2025 and sell it today you would earn a total of  122.00  from holding Red Electrica Corporacion or generate 14.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Consumers Energy  vs.  Red Electrica Corporacion

Consumers Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Consumers Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Consumers Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Red Electrica Corporacion

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Red Electrica Corporacion are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Red Electrica showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Consumers Energy and Red Electrica

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

The idea behind Consumers Energy and Red Electrica Corporacion 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.

Check out your portfolio center.

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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.