Correlation Between FirstEnergy and National Grid
Can any of the company-specific risk be diversified away by investing in both FirstEnergy and National Grid 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 National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FirstEnergy and National Grid plc, you can compare the effects of market volatilities on FirstEnergy and National Grid 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 National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of FirstEnergy and National Grid.
Diversification Opportunities for FirstEnergy and National Grid
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between FirstEnergy and National is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and National Grid plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid plc 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid plc has no effect on the direction of FirstEnergy i.e., FirstEnergy and National Grid go up and down completely randomly.
Pair Corralation between FirstEnergy and National Grid
Allowing for the 90-day total investment horizon FirstEnergy is expected to generate 7.69 times less return on investment than National Grid. But when comparing it to its historical volatility, FirstEnergy is 4.3 times less risky than National Grid. It trades about 0.02 of its potential returns per unit of risk. National Grid plc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,118 in National Grid plc on November 2, 2024 and sell it today you would earn a total of 101.00 from holding National Grid plc or generate 9.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 91.7% |
| Values | Daily Returns |
FirstEnergy vs. National Grid plc
Performance |
| Timeline |
| FirstEnergy |
| National Grid plc |
FirstEnergy and National Grid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FirstEnergy and National Grid
The main advantage of trading using opposite FirstEnergy and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FirstEnergy position performs unexpectedly, National Grid 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 National Grid will offset losses from the drop in National Grid's long position.| FirstEnergy vs. CenterPoint Energy | FirstEnergy vs. Pinnacle West Capital | FirstEnergy vs. Edison International | FirstEnergy vs. Public Service Enterprise |
| National Grid vs. Consolidated Edison | National Grid vs. Entergy | National Grid vs. FirstEnergy | National Grid vs. PPL Corporation |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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