Correlation Between WEC Energy and Eversource Energy
Can any of the company-specific risk be diversified away by investing in both WEC Energy and Eversource 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 WEC Energy and Eversource Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WEC Energy Group and Eversource Energy, you can compare the effects of market volatilities on WEC Energy and Eversource 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 WEC Energy with a short position of Eversource Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of WEC Energy and Eversource Energy.
Diversification Opportunities for WEC Energy and Eversource Energy
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between WEC and Eversource is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding WEC Energy Group and Eversource Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eversource Energy and WEC 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 WEC Energy Group are associated (or correlated) with Eversource Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eversource Energy has no effect on the direction of WEC Energy i.e., WEC Energy and Eversource Energy go up and down completely randomly.
Pair Corralation between WEC Energy and Eversource Energy
Considering the 90-day investment horizon WEC Energy Group is expected to under-perform the Eversource Energy. But the stock apears to be less risky and, when comparing its historical volatility, WEC Energy Group is 1.07 times less risky than Eversource Energy. The stock trades about -0.03 of its potential returns per unit of risk. The Eversource Energy is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 5,977 in Eversource Energy on January 28, 2024 and sell it today you would lose (31.00) from holding Eversource Energy or give up 0.52% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 95.45% |
Values | Daily Returns |
WEC Energy Group vs. Eversource Energy
Performance |
Timeline |
WEC Energy Group |
Eversource Energy |
WEC Energy and Eversource Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with WEC Energy and Eversource Energy
The main advantage of trading using opposite WEC Energy and Eversource Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WEC Energy position performs unexpectedly, Eversource 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 Eversource Energy will offset losses from the drop in Eversource Energy's long position.WEC Energy vs. Alliant Energy Corp | WEC Energy vs. Pinnacle West Capital | WEC Energy vs. FirstEnergy | WEC Energy vs. Edison International |
Eversource Energy vs. MGE Energy | Eversource Energy vs. CMS Energy | Eversource Energy vs. OGE Energy | Eversource Energy vs. DTE Energy |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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