Correlation Between Talen Energy and Consolidated Edison

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

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

Diversification Opportunities for Talen Energy and Consolidated Edison

-0.66

Correlation Coefficient

Talen Energy  Consolidated Edison

Excellent diversification

The 3 months correlation between Talen and Consolidated is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Talen Energy and Consolidated Edison in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consolidated Edison and Talen 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 Talen Energy 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 Talen Energy i.e., Talen Energy and Consolidated Edison go up and down completely randomly.

Pair Corralation between Talen Energy and Consolidated Edison

Considering the 90-day investment horizon Talen Energy is expected to generate 3.14 times more return on investment than Consolidated Edison. However, Talen Energy is 3.14 times more volatile than Consolidated Edison. It trades about 0.07 of its potential returns per unit of risk. Consolidated Edison is currently generating about -0.32 per unit of risk. If you would invest  18,100  in Talen Energy on September 22, 2024 and sell it today you would earn a total of  1,490  from holding Talen Energy or generate 8.23% return on investment over 90 days.

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

Talen Energy  vs.  Consolidated Edison

Talen Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Talen Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain essential indicators, Talen Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Talen Energy and Consolidated Edison

The main advantage of trading using opposite Talen Energy and Consolidated Edison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Talen Energy 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 Talen Energy 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..