Correlation Between FirstEnergy and Exelon

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

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

Diversification Opportunities for FirstEnergy and Exelon

0.81

Correlation Coefficient

FirstEnergy  Exelon

Very poor diversification

The 3 months correlation between FirstEnergy and Exelon is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and Exelon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exelon 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 Exelon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exelon has no effect on the direction of FirstEnergy i.e., FirstEnergy and Exelon go up and down completely randomly.

Pair Corralation between FirstEnergy and Exelon

Allowing for the 90-day total investment horizon FirstEnergy is expected to under-perform the Exelon. But the stock apears to be less risky and, when comparing its historical volatility, FirstEnergy is 1.28 times less risky than Exelon. The stock trades about -0.06 of its potential returns per unit of risk. The Exelon is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,723  in Exelon on January 29, 2024 and sell it today you would earn a total of  9.00  from holding Exelon or generate 0.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

FirstEnergy  vs.  Exelon

FirstEnergy

Risk-Adjusted Performance

5 of 100

Modest

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.

Exelon

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Exelon are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Exelon is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FirstEnergy and Exelon

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

The idea behind FirstEnergy and Exelon 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.