Correlation Between SCE Trust and Consolidated Edison

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

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

Diversification Opportunities for SCE Trust and Consolidated Edison

-0.81

Correlation Coefficient

SCE Trust  Consolidated Edison

Pay attention - limited upside

The 3 months correlation between SCE and Consolidated is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding SCE Trust III and Consolidated Edison in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consolidated Edison and SCE Trust 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 SCE Trust III are associated (or correlated) with Consolidated Edison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consolidated Edison has no effect on the direction of SCE Trust i.e., SCE Trust and Consolidated Edison go up and down completely randomly.

Pair Corralation between SCE Trust and Consolidated Edison

Assuming the 90 days trading horizon SCE Trust III is expected to generate 0.07 times more return on investment than Consolidated Edison. However, SCE Trust III is 13.58 times less risky than Consolidated Edison. It trades about 0.4 of its potential returns per unit of risk. Consolidated Edison is currently generating about -0.22 per unit of risk. If you would invest  2,508  in SCE Trust III on October 1, 2024 and sell it today you would earn a total of  33.00  from holding SCE Trust III or generate 1.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	67.19%
Values	Daily Returns

SCE Trust III  vs.  Consolidated Edison

SCE Trust III

Risk-Adjusted Performance

0 of 100

Very Strong

Over the last 90 days SCE Trust III has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, SCE Trust is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Consolidated Edison

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consolidated Edison has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with SCE Trust and Consolidated Edison

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

The idea behind SCE Trust III and Consolidated Edison 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.