Correlation Between FirstEnergy and Consolidated Edison

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

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

Diversification Opportunities for FirstEnergy and Consolidated Edison

0.83

Correlation Coefficient

FirstEnergy  Consolidated Edison

Very poor diversification

The 3 months correlation between FirstEnergy and Consolidated is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and Consolidated Edison in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consolidated Edison and FirstEnergy 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 FirstEnergy 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 FirstEnergy i.e., FirstEnergy and Consolidated Edison go up and down completely randomly.

Pair Corralation between FirstEnergy and Consolidated Edison

Allowing for the 90-day total investment horizon FirstEnergy is expected to under-perform the Consolidated Edison. But the stock apears to be less risky and, when comparing its historical volatility, FirstEnergy is 1.19 times less risky than Consolidated Edison. The stock trades about -0.09 of its potential returns per unit of risk. The Consolidated Edison is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  10,240  in Consolidated Edison on September 3, 2024 and sell it today you would lose (390.00) from holding Consolidated Edison or give up 3.81% of portfolio value over 90 days.

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

FirstEnergy  vs.  Consolidated Edison

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 rather sound technical and fundamental indicators, FirstEnergy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 rather sound fundamental indicators, Consolidated Edison is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FirstEnergy and Consolidated Edison

The main advantage of trading using opposite FirstEnergy and Consolidated Edison positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FirstEnergy 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 FirstEnergy 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.