Correlation Between AES and FirstEnergy

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

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

Diversification Opportunities for AES and FirstEnergy

0.15

Correlation Coefficient

AES  FirstEnergy

Average diversification

The 3 months correlation between AES and FirstEnergy is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding The AES and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy and AES 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 The AES 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 AES i.e., AES and FirstEnergy go up and down completely randomly.

Pair Corralation between AES and FirstEnergy

Considering the 90-day investment horizon The AES is expected to under-perform the FirstEnergy. In addition to that, AES is 1.96 times more volatile than FirstEnergy. It trades about -0.02 of its total potential returns per unit of risk. FirstEnergy is currently generating about 0.02 per unit of volatility. If you would invest  3,735  in FirstEnergy on January 25, 2024 and sell it today you would earn a total of  95.00  from holding FirstEnergy or generate 2.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.52%
Values	Daily Returns

The AES  vs.  FirstEnergy

AES

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The AES are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, AES is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

FirstEnergy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FirstEnergy are ranked lower than 6 (%) 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 AES and FirstEnergy

The main advantage of trading using opposite AES and FirstEnergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AES 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 The AES 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.