Correlation Between Drilling Tools and NRG Energy
Can any of the company-specific risk be diversified away by investing in both Drilling Tools 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 Drilling Tools and NRG Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Drilling Tools International and NRG Energy, you can compare the effects of market volatilities on Drilling Tools 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 Drilling Tools with a short position of NRG Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Drilling Tools and NRG Energy.
Diversification Opportunities for Drilling Tools and NRG Energy
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Drilling and NRG is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Drilling Tools International and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Drilling Tools 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 Drilling Tools International 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 Drilling Tools i.e., Drilling Tools and NRG Energy go up and down completely randomly.
Pair Corralation between Drilling Tools and NRG Energy
Considering the 90-day investment horizon Drilling Tools is expected to generate 2.12 times less return on investment than NRG Energy. But when comparing it to its historical volatility, Drilling Tools International is 1.21 times less risky than NRG Energy. It trades about 0.11 of its potential returns per unit of risk. NRG Energy is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 8,999 in NRG Energy on September 1, 2024 and sell it today you would earn a total of 1,162 from holding NRG Energy or generate 12.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Drilling Tools International vs. NRG Energy
Performance |
| Timeline |
| Drilling Tools Inter |
| NRG Energy |
Drilling Tools and NRG Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Drilling Tools and NRG Energy
The main advantage of trading using opposite Drilling Tools and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Drilling Tools 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.| Drilling Tools vs. Sun Life Financial | Drilling Tools vs. National Beverage Corp | Drilling Tools vs. Aegon NV ADR | Drilling Tools vs. Assurant |
| NRG Energy vs. Pampa Energia SA | NRG Energy vs. TransAlta Corp | NRG Energy vs. Kenon Holdings | NRG Energy vs. Power Assets Holdings |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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