Correlation Between AES and First National

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

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

Diversification Opportunities for AES and First National

0.34

Correlation Coefficient

AES  First National

Weak diversification

The 3 months correlation between AES and First is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding The AES and First National Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Energy 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 First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Energy has no effect on the direction of AES i.e., AES and First National go up and down completely randomly.

Pair Corralation between AES and First National

Considering the 90-day investment horizon The AES is expected to generate 0.17 times more return on investment than First National. However, The AES is 5.96 times less risky than First National. It trades about 0.01 of its potential returns per unit of risk. First National Energy is currently generating about -0.01 per unit of risk. If you would invest  1,264  in The AES on December 26, 2024 and sell it today you would lose (13.50) from holding The AES or give up 1.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

The AES  vs.  First National Energy

AES

Risk-Adjusted Performance

Weak

Over the last 90 days The AES has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

First National Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days First National Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with AES and First National

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

The idea behind The AES and First National Energy 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.