Correlation Between FirstEnergy and Nextera Energy

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

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

Diversification Opportunities for FirstEnergy and Nextera Energy

0.8

Correlation Coefficient

FirstEnergy  Nextera Energy

Very poor diversification

The 3 months correlation between FirstEnergy and Nextera is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy 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 Nextera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextera Energy has no effect on the direction of FirstEnergy i.e., FirstEnergy and Nextera Energy go up and down completely randomly.

Pair Corralation between FirstEnergy and Nextera Energy

Allowing for the 90-day total investment horizon FirstEnergy is expected to under-perform the Nextera Energy. But the stock apears to be less risky and, when comparing its historical volatility, FirstEnergy is 1.87 times less risky than Nextera Energy. The stock trades about -0.03 of its potential returns per unit of risk. The Nextera Energy is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  7,997  in Nextera Energy on August 30, 2024 and sell it today you would lose (145.00) from holding Nextera Energy or give up 1.81% of portfolio value over 90 days.

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

FirstEnergy  vs.  Nextera Energy

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.

Nextera Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextera Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Nextera Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FirstEnergy and Nextera Energy

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

The idea behind FirstEnergy and Nextera 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.