Correlation Between NRG Energy and Transurban
Can any of the company-specific risk be diversified away by investing in both NRG Energy and Transurban 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 Transurban into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NRG Energy and Transurban Group, you can compare the effects of market volatilities on NRG Energy and Transurban 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 Transurban. Check out your portfolio center. Please also check ongoing floating volatility patterns of NRG Energy and Transurban.
Diversification Opportunities for NRG Energy and Transurban
-0.73 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between NRG and Transurban is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Transurban Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transurban Group 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 Transurban. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transurban Group has no effect on the direction of NRG Energy i.e., NRG Energy and Transurban go up and down completely randomly.
Pair Corralation between NRG Energy and Transurban
Considering the 90-day investment horizon NRG Energy is expected to generate 0.84 times more return on investment than Transurban. However, NRG Energy is 1.2 times less risky than Transurban. It trades about 0.1 of its potential returns per unit of risk. Transurban Group is currently generating about 0.04 per unit of risk. If you would invest 7,756 in NRG Energy on September 1, 2024 and sell it today you would earn a total of 2,405 from holding NRG Energy or generate 31.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
NRG Energy vs. Transurban Group
Performance |
| Timeline |
| NRG Energy |
| Transurban Group |
NRG Energy and Transurban Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NRG Energy and Transurban
The main advantage of trading using opposite NRG Energy and Transurban positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NRG Energy position performs unexpectedly, Transurban 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 Transurban will offset losses from the drop in Transurban's long position.The idea behind NRG Energy and Transurban Group 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.| Transurban vs. BCE Inc | Transurban vs. Digi International | Transurban vs. Sphere Entertainment Co | Transurban vs. Anterix |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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