Correlation Between Edison International and FirstEnergy
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 Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Edison International vs. FirstEnergy
Performance |
Timeline |
Edison International |
FirstEnergy |
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.Edison International vs. Ryman Hospitality Properties | Edison International vs. InFintT Acquisition Corp | Edison International vs. Shake Shack | Edison International vs. Kura Sushi USA |
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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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