Correlation Between Eversource Energy and Exelon

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

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

Diversification Opportunities for Eversource Energy and Exelon

0.89

Correlation Coefficient

Eversource Energy  Exelon

Very poor diversification

The 3 months correlation between Eversource and Exelon is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Eversource Energy and Exelon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exelon and Eversource 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 Eversource Energy are associated (or correlated) with Exelon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exelon has no effect on the direction of Eversource Energy i.e., Eversource Energy and Exelon go up and down completely randomly.

Pair Corralation between Eversource Energy and Exelon

Allowing for the 90-day total investment horizon Eversource Energy is expected to generate 1.04 times more return on investment than Exelon. However, Eversource Energy is 1.04 times more volatile than Exelon. It trades about 0.05 of its potential returns per unit of risk. Exelon is currently generating about 0.02 per unit of risk. If you would invest  5,888  in Eversource Energy on January 30, 2024 and sell it today you would earn a total of  58.00  from holding Eversource Energy or generate 0.99% return on investment over 90 days.

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

Eversource Energy  vs.  Exelon

Eversource Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eversource Energy are ranked lower than 7 (%) 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.

Exelon

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Exelon are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Exelon may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Eversource Energy and Exelon

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

The idea behind Eversource Energy and Exelon 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.