Correlation Between Nextera Energy and National Grid
Can any of the company-specific risk be diversified away by investing in both Nextera Energy 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 Nextera Energy and National Grid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nextera Energy and National Grid PLC, you can compare the effects of market volatilities on Nextera Energy 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 Nextera Energy with a short position of National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nextera Energy and National Grid.
Diversification Opportunities for Nextera Energy and National Grid
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Nextera and National is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy 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 Nextera Energy 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 Nextera Energy 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 Nextera Energy i.e., Nextera Energy and National Grid go up and down completely randomly.
Pair Corralation between Nextera Energy and National Grid
Considering the 90-day investment horizon Nextera Energy is expected to generate 8.25 times less return on investment than National Grid. In addition to that, Nextera Energy is 1.25 times more volatile than National Grid PLC. It trades about 0.0 of its total potential returns per unit of risk. National Grid PLC is currently generating about 0.03 per unit of volatility. If you would invest 5,343 in National Grid PLC on August 24, 2024 and sell it today you would earn a total of 967.00 from holding National Grid PLC or generate 18.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Nextera Energy vs. National Grid PLC
Performance |
| Timeline |
| Nextera Energy |
| National Grid PLC |
Nextera Energy and National Grid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nextera Energy and National Grid
The main advantage of trading using opposite Nextera Energy and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nextera Energy 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.| Nextera Energy vs. Skyworks Solutions | Nextera Energy vs. Amkor Technology | Nextera Energy vs. Archrock | Nextera Energy vs. ScanSource |
| National Grid vs. Southern Company | National Grid vs. Edison International | National Grid vs. American Electric Power | National Grid vs. Duke Energy |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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