Correlation Between Basic Materials and NextEra Energy
Can any of the company-specific risk be diversified away by investing in both Basic Materials and NextEra 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 Basic Materials and NextEra Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and NextEra Energy, you can compare the effects of market volatilities on Basic Materials and NextEra 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 Basic Materials with a short position of NextEra Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and NextEra Energy.
Diversification Opportunities for Basic Materials and NextEra Energy
-0.11 | Correlation Coefficient |
Good diversification
The 3 months correlation between Basic and NextEra is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and NextEra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextEra Energy and Basic Materials 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 Basic Materials are associated (or correlated) with NextEra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextEra Energy has no effect on the direction of Basic Materials i.e., Basic Materials and NextEra Energy go up and down completely randomly.
Pair Corralation between Basic Materials and NextEra Energy
Assuming the 90 days trading horizon Basic Materials is expected to generate 4.21 times less return on investment than NextEra Energy. But when comparing it to its historical volatility, Basic Materials is 1.6 times less risky than NextEra Energy. It trades about 0.01 of its potential returns per unit of risk. NextEra Energy is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 11,042 in NextEra Energy on September 3, 2024 and sell it today you would earn a total of 794.00 from holding NextEra Energy or generate 7.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.0% |
| Values | Daily Returns |
Basic Materials vs. NextEra Energy
Performance |
| Timeline |
Basic Materials and NextEra Energy Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
NextEra Energy
Pair trading matchups for NextEra Energy
Pair Trading with Basic Materials and NextEra Energy
The main advantage of trading using opposite Basic Materials and NextEra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, NextEra 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 NextEra Energy will offset losses from the drop in NextEra Energy's long position.| Basic Materials vs. G2D Investments | Basic Materials vs. Take Two Interactive Software | Basic Materials vs. Dell Technologies | Basic Materials vs. Brpr Corporate Offices |
| NextEra Energy vs. Bio Techne | NextEra Energy vs. BIONTECH SE DRN | NextEra Energy vs. Agilent Technologies | NextEra Energy vs. T Mobile |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
Other Complementary Tools
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum | |
| Portfolio Analyzer Portfolio analysis module that provides access to portfolio diagnostics and optimization engine | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation |