Correlation Between NRG Energy and American Airlines
Can any of the company-specific risk be diversified away by investing in both NRG Energy and American Airlines 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 American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NRG Energy and American Airlines Group, you can compare the effects of market volatilities on NRG Energy and American Airlines 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 American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of NRG Energy and American Airlines.
Diversification Opportunities for NRG Energy and American Airlines
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between NRG and American is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of NRG Energy i.e., NRG Energy and American Airlines go up and down completely randomly.
Pair Corralation between NRG Energy and American Airlines
Considering the 90-day investment horizon NRG Energy is expected to generate 1.3 times more return on investment than American Airlines. However, NRG Energy is 1.3 times more volatile than American Airlines Group. It trades about 0.27 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.16 per unit of risk. If you would invest 8,672 in NRG Energy on September 2, 2024 and sell it today you would earn a total of 1,489 from holding NRG Energy or generate 17.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NRG Energy vs. American Airlines Group
Performance |
| Timeline |
| NRG Energy |
| American Airlines |
NRG Energy and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NRG Energy and American Airlines
The main advantage of trading using opposite NRG Energy and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NRG Energy position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| NRG Energy vs. TransAlta Corp | NRG Energy vs. Kenon Holdings | NRG Energy vs. Pampa Energia SA | NRG Energy vs. AGL Energy |
| American Airlines vs. Canadian Pacific Railway | American Airlines vs. Werner Enterprises | American Airlines vs. Canadian National Railway | American Airlines vs. CSX Corporation |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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