Correlation Between Entergy and Dominion Energy

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

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

Diversification Opportunities for Entergy and Dominion Energy

-0.22

Correlation Coefficient

Entergy  Dominion Energy

Very good diversification

The 3 months correlation between Entergy and Dominion is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Entergy and Dominion Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominion Energy and Entergy 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 Entergy 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 Entergy i.e., Entergy and Dominion Energy go up and down completely randomly.

Pair Corralation between Entergy and Dominion Energy

Considering the 90-day investment horizon Entergy is expected to generate 1.67 times more return on investment than Dominion Energy. However, Entergy is 1.67 times more volatile than Dominion Energy. It trades about 0.12 of its potential returns per unit of risk. Dominion Energy is currently generating about -0.07 per unit of risk. If you would invest  6,397  in Entergy on September 22, 2024 and sell it today you would earn a total of  1,116  from holding Entergy or generate 17.45% return on investment over 90 days.

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

Entergy  vs.  Dominion Energy

Entergy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Entergy reported solid returns over the last few months and may actually be approaching a breakup point.

Dominion Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dominion Energy has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Entergy and Dominion Energy

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