Correlation Between NRG Energy and Algonquin Power
Can any of the company-specific risk be diversified away by investing in both NRG Energy and Algonquin Power 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 NRG Energy and Algonquin Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NRG Energy and Algonquin Power Utilities, you can compare the effects of market volatilities on NRG Energy and Algonquin Power 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 NRG Energy with a short position of Algonquin Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of NRG Energy and Algonquin Power.
Diversification Opportunities for NRG Energy and Algonquin Power
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between NRG and Algonquin is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities and NRG 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 NRG Energy are associated (or correlated) with Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of NRG Energy i.e., NRG Energy and Algonquin Power go up and down completely randomly.
Pair Corralation between NRG Energy and Algonquin Power
Assuming the 90 days horizon NRG Energy is expected to generate 2.01 times more return on investment than Algonquin Power. However, NRG Energy is 2.01 times more volatile than Algonquin Power Utilities. It trades about 0.15 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about -0.13 per unit of risk. If you would invest 8,968 in NRG Energy on November 4, 2024 and sell it today you would earn a total of 970.00 from holding NRG Energy or generate 10.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NRG Energy vs. Algonquin Power Utilities
Performance |
| Timeline |
| NRG Energy |
| Algonquin Power Utilities |
NRG Energy and Algonquin Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NRG Energy and Algonquin Power
The main advantage of trading using opposite NRG Energy and Algonquin Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NRG Energy position performs unexpectedly, Algonquin Power 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 Algonquin Power will offset losses from the drop in Algonquin Power's long position.| NRG Energy vs. FARM 51 GROUP | NRG Energy vs. JIAHUA STORES | NRG Energy vs. Tokyu Construction Co | NRG Energy vs. FAST RETAIL ADR |
| Algonquin Power vs. APPLIED MATERIALS | Algonquin Power vs. Gladstone Investment | Algonquin Power vs. Summit Materials | Algonquin Power vs. SEI INVESTMENTS |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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