Correlation Between Edison International and FirstEnergy

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Can any of the company-specific risk be diversified away by investing in both Edison International 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 Edison International and FirstEnergy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Edison International and FirstEnergy, you can compare the effects of market volatilities on Edison International 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 Edison International with a short position of FirstEnergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edison International and FirstEnergy.

Diversification Opportunities for Edison International and FirstEnergy

0.45
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Edison and FirstEnergy is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy and Edison International 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 Edison International 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 Edison International i.e., Edison International and FirstEnergy go up and down completely randomly.

Pair Corralation between Edison International and FirstEnergy

Considering the 90-day investment horizon Edison International is expected to generate 1.14 times more return on investment than FirstEnergy. However, Edison International is 1.14 times more volatile than FirstEnergy. It trades about 0.02 of its potential returns per unit of risk. FirstEnergy is currently generating about -0.01 per unit of risk. If you would invest  6,477  in Edison International on December 30, 2023 and sell it today you would earn a total of  596.00  from holding Edison International or generate 9.2% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Edison International  vs.  FirstEnergy

 Performance 
       Timeline  
Edison International 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Edison International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, Edison International 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

5 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in FirstEnergy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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.

Edison International and FirstEnergy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Edison International and FirstEnergy

The main advantage of trading using opposite Edison International and FirstEnergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edison International 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 Edison International 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.
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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