Correlation Between NRG Energy and Solventum Corp
Can any of the company-specific risk be diversified away by investing in both NRG Energy and Solventum Corp 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 Solventum Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NRG Energy and Solventum Corp, you can compare the effects of market volatilities on NRG Energy and Solventum Corp 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 Solventum Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of NRG Energy and Solventum Corp.
Diversification Opportunities for NRG Energy and Solventum Corp
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between NRG and Solventum is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Solventum Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solventum Corp 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 Solventum Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solventum Corp has no effect on the direction of NRG Energy i.e., NRG Energy and Solventum Corp go up and down completely randomly.
Pair Corralation between NRG Energy and Solventum Corp
Considering the 90-day investment horizon NRG Energy is expected to generate 2.02 times more return on investment than Solventum Corp. However, NRG Energy is 2.02 times more volatile than Solventum Corp. It trades about 0.2 of its potential returns per unit of risk. Solventum Corp is currently generating about -0.04 per unit of risk. If you would invest 8,999 in NRG Energy on September 1, 2024 and sell it today you would earn a total of 1,162 from holding NRG Energy or generate 12.91% 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. Solventum Corp
Performance |
| Timeline |
| NRG Energy |
| Solventum Corp |
NRG Energy and Solventum Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NRG Energy and Solventum Corp
The main advantage of trading using opposite NRG Energy and Solventum Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NRG Energy position performs unexpectedly, Solventum Corp 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 Solventum Corp will offset losses from the drop in Solventum Corp's long position.The idea behind NRG Energy and Solventum Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Solventum Corp vs. Nok Airlines Public | Solventum Corp vs. Zoom Video Communications | Solventum Corp vs. Videolocity International | Solventum Corp vs. Allegiant Travel |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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