Correlation Between NRG Energy and NorthWestern
Can any of the company-specific risk be diversified away by investing in both NRG Energy and NorthWestern 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 NorthWestern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NRG Energy and NorthWestern, you can compare the effects of market volatilities on NRG Energy and NorthWestern 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 NorthWestern. Check out your portfolio center. Please also check ongoing floating volatility patterns of NRG Energy and NorthWestern.
Diversification Opportunities for NRG Energy and NorthWestern
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between NRG and NorthWestern is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern 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 NorthWestern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorthWestern has no effect on the direction of NRG Energy i.e., NRG Energy and NorthWestern go up and down completely randomly.
Pair Corralation between NRG Energy and NorthWestern
Considering the 90-day investment horizon NRG Energy is expected to generate 2.05 times more return on investment than NorthWestern. However, NRG Energy is 2.05 times more volatile than NorthWestern. It trades about 0.19 of its potential returns per unit of risk. NorthWestern is currently generating about 0.05 per unit of risk. If you would invest 8,805 in NRG Energy on August 31, 2024 and sell it today you would earn a total of 1,084 from holding NRG Energy or generate 12.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NRG Energy vs. NorthWestern
Performance |
| Timeline |
| NRG Energy |
| NorthWestern |
NRG Energy and NorthWestern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NRG Energy and NorthWestern
The main advantage of trading using opposite NRG Energy and NorthWestern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NRG Energy position performs unexpectedly, NorthWestern 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 NorthWestern will offset losses from the drop in NorthWestern's long position.| NRG Energy vs. TransAlta Corp | NRG Energy vs. Kenon Holdings | NRG Energy vs. Pampa Energia SA | NRG Energy vs. AGL Energy |
| NorthWestern vs. Allete Inc | NorthWestern vs. Black Hills | NorthWestern vs. Otter Tail | NorthWestern vs. Avista |
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 CEOs Directory module to screen CEOs from public companies around the world.
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