Correlation Between Align Technology and NRG Energy
Can any of the company-specific risk be diversified away by investing in both Align Technology and NRG 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 Align Technology and NRG Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Align Technology and NRG Energy, you can compare the effects of market volatilities on Align Technology and NRG 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 Align Technology with a short position of NRG Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Align Technology and NRG Energy.
Diversification Opportunities for Align Technology and NRG Energy
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Align and NRG is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Align Technology 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 Align Technology are associated (or correlated) with NRG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRG Energy has no effect on the direction of Align Technology i.e., Align Technology and NRG Energy go up and down completely randomly.
Pair Corralation between Align Technology and NRG Energy
Assuming the 90 days horizon Align Technology is expected to generate 4.08 times less return on investment than NRG Energy. But when comparing it to its historical volatility, Align Technology is 1.19 times less risky than NRG Energy. It trades about 0.04 of its potential returns per unit of risk. NRG Energy is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 9,392 in NRG Energy on October 28, 2024 and sell it today you would earn a total of 1,148 from holding NRG Energy or generate 12.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Align Technology vs. NRG Energy
Performance |
| Timeline |
| Align Technology |
| NRG Energy |
Align Technology and NRG Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Align Technology and NRG Energy
The main advantage of trading using opposite Align Technology and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Align Technology position performs unexpectedly, NRG 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 NRG Energy will offset losses from the drop in NRG Energy's long position.| Align Technology vs. Abbott Laboratories | Align Technology vs. Abbott Laboratories | Align Technology vs. Medtronic PLC | Align Technology vs. Stryker |
| NRG Energy vs. PennantPark Investment | NRG Energy vs. Chuangs China Investments | NRG Energy vs. Scottish Mortgage Investment | NRG Energy vs. Guangdong Investment Limited |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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