Correlation Between FirstEnergy and National Grid

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

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

Diversification Opportunities for FirstEnergy and National Grid

0.28

Correlation Coefficient

FirstEnergy  National Grid

Modest diversification

The 3 months correlation between FirstEnergy and National is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and National Grid PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid PLC 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid PLC has no effect on the direction of FirstEnergy i.e., FirstEnergy and National Grid go up and down completely randomly.

Pair Corralation between FirstEnergy and National Grid

Allowing for the 90-day total investment horizon FirstEnergy is expected to generate 3.26 times less return on investment than National Grid. In addition to that, FirstEnergy is 1.41 times more volatile than National Grid PLC. It trades about 0.03 of its total potential returns per unit of risk. National Grid PLC is currently generating about 0.13 per unit of volatility. If you would invest  5,921  in National Grid PLC on December 30, 2024 and sell it today you would earn a total of  636.00  from holding National Grid PLC or generate 10.74% 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.  National Grid PLC

FirstEnergy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FirstEnergy are ranked lower than 2 (%) 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.

National Grid PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Grid PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, National Grid may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with FirstEnergy and National Grid

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

The idea behind FirstEnergy and National Grid PLC 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..