Correlation Between First National and Tokyo Electric

Can any of the company-specific risk be diversified away by investing in both First National and Tokyo Electric 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 Tokyo Electric 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 Tokyo Electric Power, you can compare the effects of market volatilities on First National and Tokyo Electric 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 Tokyo Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of First National and Tokyo Electric.

Diversification Opportunities for First National and Tokyo Electric

0.34

Correlation Coefficient

First National  Tokyo Electric

Weak diversification

The 3 months correlation between First and Tokyo is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding First National Energy and Tokyo Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electric Power 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 Tokyo Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electric Power has no effect on the direction of First National i.e., First National and Tokyo Electric go up and down completely randomly.

Pair Corralation between First National and Tokyo Electric

Given the investment horizon of 90 days First National Energy is expected to under-perform the Tokyo Electric. In addition to that, First National is 2.4 times more volatile than Tokyo Electric Power. It trades about -0.02 of its total potential returns per unit of risk. Tokyo Electric Power is currently generating about 0.09 per unit of volatility. If you would invest  275.00  in Tokyo Electric Power on December 21, 2024 and sell it today you would earn a total of  71.00  from holding Tokyo Electric Power or generate 25.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.65%
Values	Daily Returns

First National Energy  vs.  Tokyo Electric Power

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 fragile performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Tokyo Electric Power

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Electric Power are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Tokyo Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First National and Tokyo Electric

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

The idea behind First National Energy and Tokyo Electric Power 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.