Correlation Between FirstEnergy and Centrais Elétricas

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

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

Diversification Opportunities for FirstEnergy and Centrais Elétricas

0.75

Correlation Coefficient

FirstEnergy  Centrais Elétricas

Poor diversification

The 3 months correlation between FirstEnergy and Centrais is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Elétricas 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 Centrais Elétricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Elétricas has no effect on the direction of FirstEnergy i.e., FirstEnergy and Centrais Elétricas go up and down completely randomly.

Pair Corralation between FirstEnergy and Centrais Elétricas

Allowing for the 90-day total investment horizon FirstEnergy is expected to generate 0.47 times more return on investment than Centrais Elétricas. However, FirstEnergy is 2.12 times less risky than Centrais Elétricas. It trades about -0.03 of its potential returns per unit of risk. Centrais Eltricas Brasileiras is currently generating about -0.16 per unit of risk. If you would invest  4,347  in FirstEnergy on August 30, 2024 and sell it today you would lose (85.00) from holding FirstEnergy or give up 1.96% of portfolio value over 90 days.

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

FirstEnergy  vs.  Centrais Eltricas Brasileiras

FirstEnergy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Centrais Elétricas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centrais Eltricas Brasileiras has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with FirstEnergy and Centrais Elétricas

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

The idea behind FirstEnergy and Centrais Eltricas Brasileiras 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.