Correlation Between WEC Energy and Dominion Energy

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Can any of the company-specific risk be diversified away by investing in both WEC Energy and Dominion 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 Dominion 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 Dominion Energy, you can compare the effects of market volatilities on WEC Energy and Dominion 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 Dominion Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of WEC Energy and Dominion Energy.

Diversification Opportunities for WEC Energy and Dominion Energy

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between WEC and Dominion is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding WEC Energy Group and Dominion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominion 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 Dominion Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominion Energy has no effect on the direction of WEC Energy i.e., WEC Energy and Dominion Energy go up and down completely randomly.

Pair Corralation between WEC Energy and Dominion Energy

Considering the 90-day investment horizon WEC Energy Group is expected to generate 0.48 times more return on investment than Dominion Energy. However, WEC Energy Group is 2.08 times less risky than Dominion Energy. It trades about 0.26 of its potential returns per unit of risk. Dominion Energy is currently generating about 0.07 per unit of risk. If you would invest  7,720  in WEC Energy Group on December 30, 2023 and sell it today you would earn a total of  492.00  from holding WEC Energy Group or generate 6.37% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

WEC Energy Group  vs.  Dominion Energy

 Performance 
       Timeline  
WEC Energy Group 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days WEC Energy Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, WEC Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Dominion Energy 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Dominion Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Dominion Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

WEC Energy and Dominion Energy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with WEC Energy and Dominion Energy

The main advantage of trading using opposite WEC Energy and Dominion Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WEC Energy position performs unexpectedly, Dominion 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 Dominion Energy will offset losses from the drop in Dominion Energy's long position.
The idea behind WEC Energy Group and Dominion 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.
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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