Correlation Between Northland Power and Nextera Energy
Can any of the company-specific risk be diversified away by investing in both Northland Power 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 Northland Power and Nextera Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northland Power and Nextera Energy, you can compare the effects of market volatilities on Northland Power 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 Northland Power with a short position of Nextera Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northland Power and Nextera Energy.
Diversification Opportunities for Northland Power and Nextera Energy
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northland and Nextera is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Northland Power and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy and Northland Power 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 Northland Power 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 Northland Power i.e., Northland Power and Nextera Energy go up and down completely randomly.
Pair Corralation between Northland Power and Nextera Energy
Assuming the 90 days horizon Northland Power is expected to under-perform the Nextera Energy. In addition to that, Northland Power is 1.37 times more volatile than Nextera Energy. It trades about -0.02 of its total potential returns per unit of risk. Nextera Energy is currently generating about 0.05 per unit of volatility. If you would invest 4,042 in Nextera Energy on September 3, 2024 and sell it today you would earn a total of 299.00 from holding Nextera Energy or generate 7.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northland Power vs. Nextera Energy
Performance |
| Timeline |
| Northland Power |
| Nextera Energy |
Northland Power and Nextera Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northland Power and Nextera Energy
The main advantage of trading using opposite Northland Power and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northland Power 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.| Northland Power vs. Tidewater Renewables | Northland Power vs. Renew Energy Global | Northland Power vs. Clearway Energy | Northland Power vs. Brookfield Renewable Partners |
| Nextera Energy vs. Fossil Group | Nextera Energy vs. BJs Restaurants | Nextera Energy vs. JD Sports Fashion | Nextera Energy vs. Old Dominion Freight |
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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