Correlation Between FirstEnergy and Allete

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

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

Diversification Opportunities for FirstEnergy and Allete

0.25

Correlation Coefficient

FirstEnergy  Allete

Modest diversification

The 3 months correlation between FirstEnergy and Allete is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and Allete Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allete Inc 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 Allete. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allete Inc has no effect on the direction of FirstEnergy i.e., FirstEnergy and Allete go up and down completely randomly.

Pair Corralation between FirstEnergy and Allete

Allowing for the 90-day total investment horizon FirstEnergy is expected to generate 1.58 times less return on investment than Allete. In addition to that, FirstEnergy is 7.19 times more volatile than Allete Inc. It trades about 0.01 of its total potential returns per unit of risk. Allete Inc is currently generating about 0.17 per unit of volatility. If you would invest  6,391  in Allete Inc on December 29, 2024 and sell it today you would earn a total of  180.00  from holding Allete Inc or generate 2.82% return on investment over 90 days.

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

FirstEnergy  vs.  Allete Inc

FirstEnergy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FirstEnergy are ranked lower than 1 (%) 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.

Allete Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allete Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Allete is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FirstEnergy and Allete

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

The idea behind FirstEnergy and Allete Inc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.