Correlation Between Consolidated Edison and NextEra Energy

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

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

Diversification Opportunities for Consolidated Edison and NextEra Energy

-0.56

Correlation Coefficient

Consolidated Edison  NextEra Energy

Excellent diversification

The 3 months correlation between Consolidated and NextEra is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and NextEra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextEra Energy 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 NextEra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextEra Energy has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and NextEra Energy go up and down completely randomly.

Pair Corralation between Consolidated Edison and NextEra Energy

Assuming the 90 days horizon Consolidated Edison is expected to under-perform the NextEra Energy. But the stock apears to be less risky and, when comparing its historical volatility, Consolidated Edison is 1.44 times less risky than NextEra Energy. The stock trades about -0.14 of its potential returns per unit of risk. The NextEra Energy is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,952  in NextEra Energy on April 23, 2025 and sell it today you would earn a total of  610.00  from holding NextEra Energy or generate 10.25% return on investment over 90 days.

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

Consolidated Edison  vs.  NextEra Energy

Consolidated Edison

Risk-Adjusted Performance

Very Weak

Over the last 90 days Consolidated Edison has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in August 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

NextEra Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NextEra Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NextEra Energy may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Consolidated Edison and NextEra Energy

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

The idea behind Consolidated Edison and NextEra 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.