Correlation Between Public Service and FirstEnergy

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

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

Diversification Opportunities for Public Service and FirstEnergy

0.81

Correlation Coefficient

Public Service  FirstEnergy

Very poor diversification

The 3 months correlation between Public and FirstEnergy is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Public Service Enterprise and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy and Public Service 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 Public Service Enterprise 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 Public Service i.e., Public Service and FirstEnergy go up and down completely randomly.

Pair Corralation between Public Service and FirstEnergy

Considering the 90-day investment horizon Public Service Enterprise is expected to generate 0.86 times more return on investment than FirstEnergy. However, Public Service Enterprise is 1.17 times less risky than FirstEnergy. It trades about 0.35 of its potential returns per unit of risk. FirstEnergy is currently generating about 0.12 per unit of risk. If you would invest  6,611  in Public Service Enterprise on February 4, 2024 and sell it today you would earn a total of  434.00  from holding Public Service Enterprise or generate 6.56% return on investment over 90 days.

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

Public Service Enterprise  vs.  FirstEnergy

Public Service Enterprise

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Public Service Enterprise are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Public Service reported solid returns over the last few months and may actually be approaching a breakup point.

FirstEnergy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FirstEnergy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, FirstEnergy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Public Service and FirstEnergy

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

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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.