Correlation Between FirstEnergy and Xcel Energy

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

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

Diversification Opportunities for FirstEnergy and Xcel Energy

0.54

Correlation Coefficient

FirstEnergy  Xcel Energy

Very weak diversification

The 3 months correlation between FirstEnergy and Xcel is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding FirstEnergy and Xcel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel Energy 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 Xcel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Energy has no effect on the direction of FirstEnergy i.e., FirstEnergy and Xcel Energy go up and down completely randomly.

Pair Corralation between FirstEnergy and Xcel Energy

Allowing for the 90-day total investment horizon FirstEnergy is expected to generate 0.91 times more return on investment than Xcel Energy. However, FirstEnergy is 1.1 times less risky than Xcel Energy. It trades about 0.04 of its potential returns per unit of risk. Xcel Energy is currently generating about 0.02 per unit of risk. If you would invest  3,480  in FirstEnergy on February 11, 2025 and sell it today you would earn a total of  692.00  from holding FirstEnergy or generate 19.89% return on investment over 90 days.

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

FirstEnergy  vs.  Xcel Energy

FirstEnergy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FirstEnergy are ranked lower than 3 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Xcel Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xcel Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Xcel Energy is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with FirstEnergy and Xcel Energy

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

The idea behind FirstEnergy and Xcel Energy 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.