Correlation Between FirstEnergy and Consolidated Water

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

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

Diversification Opportunities for FirstEnergy and Consolidated Water

-0.51

Correlation Coefficient

FirstEnergy  Consolidated Water

Excellent diversification

The 3 months correlation between FirstEnergy and Consolidated is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and Consolidated Water Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consolidated Water 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 Consolidated Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consolidated Water has no effect on the direction of FirstEnergy i.e., FirstEnergy and Consolidated Water go up and down completely randomly.

Pair Corralation between FirstEnergy and Consolidated Water

Allowing for the 90-day total investment horizon FirstEnergy is expected to generate 0.38 times more return on investment than Consolidated Water. However, FirstEnergy is 2.66 times less risky than Consolidated Water. It trades about 0.16 of its potential returns per unit of risk. Consolidated Water Co is currently generating about -0.13 per unit of risk. If you would invest  3,650  in FirstEnergy on January 31, 2024 and sell it today you would earn a total of  228.00  from holding FirstEnergy or generate 6.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.62%
Values	Daily Returns

FirstEnergy  vs.  Consolidated Water Co

FirstEnergy

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FirstEnergy are ranked lower than 5 (%) 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Consolidated Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consolidated Water Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with FirstEnergy and Consolidated Water

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

The idea behind FirstEnergy and Consolidated Water Co 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.