Correlation Between Duke Energy and FirstEnergy

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

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

Diversification Opportunities for Duke Energy and FirstEnergy

0.72

Correlation Coefficient

Duke Energy  FirstEnergy

Poor diversification

The 3 months correlation between Duke and FirstEnergy is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy Corp and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy and Duke 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 Duke Energy Corp are associated (or correlated) with FirstEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstEnergy has no effect on the direction of Duke Energy i.e., Duke Energy and FirstEnergy go up and down completely randomly.

Pair Corralation between Duke Energy and FirstEnergy

Given the investment horizon of 90 days Duke Energy Corp is expected to generate 0.53 times more return on investment than FirstEnergy. However, Duke Energy Corp is 1.9 times less risky than FirstEnergy. It trades about -0.09 of its potential returns per unit of risk. FirstEnergy is currently generating about -0.16 per unit of risk. If you would invest  2,470  in Duke Energy Corp on September 27, 2024 and sell it today you would lose (62.00) from holding Duke Energy Corp or give up 2.51% of portfolio value over 90 days.

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

Duke Energy Corp  vs.  FirstEnergy

Duke Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Duke Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward-looking signals, Duke Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

FirstEnergy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FirstEnergy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Duke Energy and FirstEnergy

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

The idea behind Duke Energy Corp and FirstEnergy 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.