Correlation Between FirstEnergy and Public Service

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

By analyzing existing cross correlation between FirstEnergy and Public Service Enterprise, you can compare the effects of market volatilities on FirstEnergy and Public Service 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 Public Service. Check out your portfolio center. Please also check ongoing floating volatility patterns of FirstEnergy and Public Service.

Diversification Opportunities for FirstEnergy and Public Service

-0.25

Correlation Coefficient

FirstEnergy  Public Service

Very good diversification

The 3 months correlation between FirstEnergy and Public is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and Public Service Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Public Service Enterprise 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 Public Service. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Public Service Enterprise has no effect on the direction of FirstEnergy i.e., FirstEnergy and Public Service go up and down completely randomly.

Pair Corralation between FirstEnergy and Public Service

Allowing for the 90-day total investment horizon FirstEnergy is expected to under-perform the Public Service. But the stock apears to be less risky and, when comparing its historical volatility, FirstEnergy is 1.82 times less risky than Public Service. The stock trades about -0.05 of its potential returns per unit of risk. The Public Service Enterprise is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  7,964  in Public Service Enterprise on September 2, 2024 and sell it today you would earn a total of  1,466  from holding Public Service Enterprise or generate 18.41% return on investment over 90 days.

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

FirstEnergy  vs.  Public Service Enterprise

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Public Service Enterprise

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Public Service Enterprise are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Public Service reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FirstEnergy and Public Service

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

The idea behind FirstEnergy and Public Service Enterprise 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.