Correlation Between Duke Energy and FirstEnergy
Can any of the company-specific risk be diversified away by investing in both Duke 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 Duke Energy and FirstEnergy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Duke Energy and FirstEnergy, you can compare the effects of market volatilities on Duke 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 Duke Energy with a short position of FirstEnergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Duke Energy and FirstEnergy.
Diversification Opportunities for Duke Energy and FirstEnergy
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Duke and FirstEnergy is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy and Duke 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 Duke 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 Duke Energy i.e., Duke Energy and FirstEnergy go up and down completely randomly.
Pair Corralation between Duke Energy and FirstEnergy
Considering the 90-day investment horizon Duke Energy is expected to generate 0.97 times more return on investment than FirstEnergy. However, Duke Energy is 1.03 times less risky than FirstEnergy. It trades about 0.05 of its potential returns per unit of risk. FirstEnergy is currently generating about 0.02 per unit of risk. If you would invest 9,249 in Duke Energy on August 27, 2024 and sell it today you would earn a total of 2,221 from holding Duke Energy or generate 24.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Duke Energy vs. FirstEnergy
Performance |
| Timeline |
| Duke Energy |
| FirstEnergy |
Duke Energy and FirstEnergy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Duke Energy and FirstEnergy
The main advantage of trading using opposite Duke Energy and FirstEnergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Duke 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.| Duke Energy vs. Dominion Energy | Duke Energy vs. Consolidated Edison | Duke Energy vs. Eversource Energy | Duke Energy vs. FirstEnergy |
| FirstEnergy vs. CenterPoint Energy | FirstEnergy vs. Pinnacle West Capital | FirstEnergy vs. Edison International | FirstEnergy vs. Public Service Enterprise |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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