Correlation Between FirstEnergy and Edison International

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

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

Diversification Opportunities for FirstEnergy and Edison International

-0.3

Correlation Coefficient

FirstEnergy  Edison International

Very good diversification

The 3 months correlation between FirstEnergy and Edison is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and Edison International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edison International 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 Edison International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edison International has no effect on the direction of FirstEnergy i.e., FirstEnergy and Edison International go up and down completely randomly.

Pair Corralation between FirstEnergy and Edison International

Allowing for the 90-day total investment horizon FirstEnergy is expected to generate 0.65 times more return on investment than Edison International. However, FirstEnergy is 1.53 times less risky than Edison International. It trades about 0.01 of its potential returns per unit of risk. Edison International is currently generating about -0.15 per unit of risk. If you would invest  3,922  in FirstEnergy on December 29, 2024 and sell it today you would earn a total of  23.00  from holding FirstEnergy or generate 0.59% return on investment over 90 days.

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

FirstEnergy  vs.  Edison International

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.

Edison International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Edison International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with FirstEnergy and Edison International

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

The idea behind FirstEnergy and Edison International 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.