Correlation Between Consolidated Edison and Fortis

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

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

Diversification Opportunities for Consolidated Edison and Fortis

0.86

Correlation Coefficient

Consolidated Edison  Fortis

Very poor diversification

The 3 months correlation between Consolidated and Fortis is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and Fortis Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortis Inc 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 Fortis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortis Inc has no effect on the direction of Consolidated Edison i.e., Consolidated Edison and Fortis go up and down completely randomly.

Pair Corralation between Consolidated Edison and Fortis

Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 1.37 times more return on investment than Fortis. However, Consolidated Edison is 1.37 times more volatile than Fortis Inc. It trades about 0.17 of its potential returns per unit of risk. Fortis Inc is currently generating about 0.21 per unit of risk. If you would invest  9,477  in Consolidated Edison on February 3, 2025 and sell it today you would earn a total of  1,526  from holding Consolidated Edison or generate 16.1% return on investment over 90 days.

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

Consolidated Edison  vs.  Fortis Inc

Consolidated Edison

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consolidated Edison are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental indicators, Consolidated Edison exhibited solid returns over the last few months and may actually be approaching a breakup point.

Fortis Inc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fortis Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Fortis unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Consolidated Edison and Fortis

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

The idea behind Consolidated Edison and Fortis Inc 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.