Correlation Between MGE Energy and FirstEnergy

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

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

Diversification Opportunities for MGE Energy and FirstEnergy

-0.61

Correlation Coefficient

MGE Energy  FirstEnergy

Excellent diversification

The 3 months correlation between MGE and FirstEnergy is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding MGE Energy and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy and MGE Energy 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 MGE Energy are associated (or correlated) with FirstEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstEnergy has no effect on the direction of MGE Energy i.e., MGE Energy and FirstEnergy go up and down completely randomly.

Pair Corralation between MGE Energy and FirstEnergy

Given the investment horizon of 90 days MGE Energy is expected to generate 1.92 times more return on investment than FirstEnergy. However, MGE Energy is 1.92 times more volatile than FirstEnergy. It trades about 0.19 of its potential returns per unit of risk. FirstEnergy is currently generating about -0.03 per unit of risk. If you would invest  8,671  in MGE Energy on August 30, 2024 and sell it today you would earn a total of  1,805  from holding MGE Energy or generate 20.82% return on investment over 90 days.

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

MGE Energy  vs.  FirstEnergy

MGE Energy

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MGE Energy are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, MGE Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with MGE Energy and FirstEnergy

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

The idea behind MGE Energy and FirstEnergy 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.