Correlation Between Entergy Texas and FirstEnergy

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

By analyzing existing cross correlation between Entergy Texas and FirstEnergy, you can compare the effects of market volatilities on Entergy Texas 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 Entergy Texas with a short position of FirstEnergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Entergy Texas and FirstEnergy.

Diversification Opportunities for Entergy Texas and FirstEnergy

-0.4

Correlation Coefficient

Entergy Texas  FirstEnergy

Very good diversification

The 3 months correlation between Entergy and FirstEnergy is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Entergy Texas and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy and Entergy Texas 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 Entergy Texas 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 Entergy Texas i.e., Entergy Texas and FirstEnergy go up and down completely randomly.

Pair Corralation between Entergy Texas and FirstEnergy

Assuming the 90 days horizon Entergy Texas is expected to generate 0.45 times more return on investment than FirstEnergy. However, Entergy Texas is 2.22 times less risky than FirstEnergy. It trades about -0.17 of its potential returns per unit of risk. FirstEnergy is currently generating about -0.18 per unit of risk. If you would invest  2,340  in Entergy Texas on March 16, 2024 and sell it today you would lose (40.00) from holding Entergy Texas or give up 1.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Entergy Texas  vs.  FirstEnergy

Entergy Texas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Entergy Texas has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Entergy Texas is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

FirstEnergy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FirstEnergy are ranked lower than 2 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Entergy Texas and FirstEnergy

The main advantage of trading using opposite Entergy Texas and FirstEnergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy Texas 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 Entergy Texas 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.