Correlation Between FirstEnergy and Central Puerto

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

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

Diversification Opportunities for FirstEnergy and Central Puerto

0.35

Correlation Coefficient

FirstEnergy  Central Puerto

Weak diversification

The 3 months correlation between FirstEnergy and Central is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and Central Puerto SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Puerto SA 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 Central Puerto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Puerto SA has no effect on the direction of FirstEnergy i.e., FirstEnergy and Central Puerto go up and down completely randomly.

Pair Corralation between FirstEnergy and Central Puerto

Allowing for the 90-day total investment horizon FirstEnergy is expected to generate 0.32 times more return on investment than Central Puerto. However, FirstEnergy is 3.13 times less risky than Central Puerto. It trades about -0.1 of its potential returns per unit of risk. Central Puerto SA is currently generating about -0.26 per unit of risk. If you would invest  3,984  in FirstEnergy on March 10, 2024 and sell it today you would lose (102.00) from holding FirstEnergy or give up 2.56% of portfolio value over 90 days.

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

FirstEnergy  vs.  Central Puerto SA

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.

Central Puerto SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Central Puerto SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Central Puerto unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FirstEnergy and Central Puerto

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

The idea behind FirstEnergy and Central Puerto SA 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.