Correlation Between FirstEnergy and SCE Trust

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

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

Diversification Opportunities for FirstEnergy and SCE Trust

-0.63

Correlation Coefficient

FirstEnergy  SCE Trust

Excellent diversification

The 3 months correlation between FirstEnergy and SCE is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and SCE Trust IV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCE Trust IV 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 SCE Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCE Trust IV has no effect on the direction of FirstEnergy i.e., FirstEnergy and SCE Trust go up and down completely randomly.

Pair Corralation between FirstEnergy and SCE Trust

Allowing for the 90-day total investment horizon FirstEnergy is expected to under-perform the SCE Trust. In addition to that, FirstEnergy is 1.94 times more volatile than SCE Trust IV. It trades about -0.15 of its total potential returns per unit of risk. SCE Trust IV is currently generating about 0.21 per unit of volatility. If you would invest  2,314  in SCE Trust IV on September 15, 2024 and sell it today you would earn a total of  143.00  from holding SCE Trust IV or generate 6.18% return on investment over 90 days.

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

FirstEnergy  vs.  SCE Trust IV

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.

SCE Trust IV

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SCE Trust IV are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady technical and fundamental indicators, SCE Trust is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with FirstEnergy and SCE Trust

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

The idea behind FirstEnergy and SCE Trust IV 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.