Correlation Between First National and NEP Old

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

By analyzing existing cross correlation between First National Energy and NEP Old, you can compare the effects of market volatilities on First National and NEP Old 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 First National with a short position of NEP Old. Check out your portfolio center. Please also check ongoing floating volatility patterns of First National and NEP Old.

Diversification Opportunities for First National and NEP Old

0.25

Correlation Coefficient

First National  NEP Old

Modest diversification

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

Pair Corralation between First National and NEP Old

Given the investment horizon of 90 days First National Energy is expected to generate 2.76 times more return on investment than NEP Old. However, First National is 2.76 times more volatile than NEP Old. It trades about -0.01 of its potential returns per unit of risk. NEP Old is currently generating about -0.33 per unit of risk. If you would invest  9.06  in First National Energy on December 28, 2024 and sell it today you would lose (6.39) from holding First National Energy or give up 70.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	36.51%
Values	Daily Returns

First National Energy  vs.  NEP Old

First National Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days First National Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

NEP Old

Risk-Adjusted Performance

Very Weak

Over the last 90 days NEP Old has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with First National and NEP Old

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

The idea behind First National Energy and NEP Old 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.