Correlation Between Empresa Distribuidora and Dominion Energy

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

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

Diversification Opportunities for Empresa Distribuidora and Dominion Energy

-0.39

Correlation Coefficient

Empresa Distribuidora  Dominion Energy

Very good diversification

The 3 months correlation between Empresa and Dominion is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Empresa Distribuidora y and Dominion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominion Energy and Empresa Distribuidora 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 Empresa Distribuidora y 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 Empresa Distribuidora i.e., Empresa Distribuidora and Dominion Energy go up and down completely randomly.

Pair Corralation between Empresa Distribuidora and Dominion Energy

Considering the 90-day investment horizon Empresa Distribuidora is expected to generate 5.95 times less return on investment than Dominion Energy. In addition to that, Empresa Distribuidora is 2.55 times more volatile than Dominion Energy. It trades about 0.01 of its total potential returns per unit of risk. Dominion Energy is currently generating about 0.15 per unit of volatility. If you would invest  4,670  in Dominion Energy on February 3, 2024 and sell it today you would earn a total of  446.00  from holding Dominion Energy or generate 9.55% return on investment over 90 days.

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

Empresa Distribuidora y  vs.  Dominion Energy

Empresa Distribuidora

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Empresa Distribuidora y has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Empresa Distribuidora is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Dominion Energy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dominion Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Dominion Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empresa Distribuidora and Dominion Energy

The main advantage of trading using opposite Empresa Distribuidora and Dominion Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Empresa Distribuidora 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 Empresa Distribuidora y 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.

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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.