Correlation Between FirstEnergy and Utilities Fund

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

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

Diversification Opportunities for FirstEnergy and Utilities Fund

0.77

Correlation Coefficient

FirstEnergy  Utilities Fund

Poor diversification

The 3 months correlation between FirstEnergy and Utilities is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and Utilities Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Fund Class 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 Utilities Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Fund Class has no effect on the direction of FirstEnergy i.e., FirstEnergy and Utilities Fund go up and down completely randomly.

Pair Corralation between FirstEnergy and Utilities Fund

Allowing for the 90-day total investment horizon FirstEnergy is expected to under-perform the Utilities Fund. But the stock apears to be less risky and, when comparing its historical volatility, FirstEnergy is 1.14 times less risky than Utilities Fund. The stock trades about -0.18 of its potential returns per unit of risk. The Utilities Fund Class is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  4,209  in Utilities Fund Class on September 29, 2024 and sell it today you would lose (247.00) from holding Utilities Fund Class or give up 5.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

FirstEnergy  vs.  Utilities Fund Class

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.

Utilities Fund Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Utilities Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Utilities Fund is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FirstEnergy and Utilities Fund

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

The idea behind FirstEnergy and Utilities Fund Class 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.