Correlation Between NRG Energy and 74256LEE5

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Can any of the company-specific risk be diversified away by investing in both NRG Energy and 74256LEE5 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 74256LEE5 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NRG Energy and US74256LEE56, you can compare the effects of market volatilities on NRG Energy and 74256LEE5 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 74256LEE5. Check out your portfolio center. Please also check ongoing floating volatility patterns of NRG Energy and 74256LEE5.

Diversification Opportunities for NRG Energy and 74256LEE5

-0.02
  Correlation Coefficient

Good diversification

The 3 months correlation between NRG and 74256LEE5 is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and US74256LEE56 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US74256LEE56 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 74256LEE5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US74256LEE56 has no effect on the direction of NRG Energy i.e., NRG Energy and 74256LEE5 go up and down completely randomly.

Pair Corralation between NRG Energy and 74256LEE5

Considering the 90-day investment horizon NRG Energy is expected to generate 7.3 times more return on investment than 74256LEE5. However, NRG Energy is 7.3 times more volatile than US74256LEE56. It trades about 0.27 of its potential returns per unit of risk. US74256LEE56 is currently generating about -0.22 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 Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy52.38%
ValuesDaily Returns

NRG Energy  vs.  US74256LEE56

 Performance 
       Timeline  
NRG Energy 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NRG Energy reported solid returns over the last few months and may actually be approaching a breakup point.
US74256LEE56 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days US74256LEE56 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 74256LEE5 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NRG Energy and 74256LEE5 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NRG Energy and 74256LEE5

The main advantage of trading using opposite NRG Energy and 74256LEE5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NRG Energy position performs unexpectedly, 74256LEE5 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 74256LEE5 will offset losses from the drop in 74256LEE5's long position.
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The idea behind NRG Energy and US74256LEE56 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.
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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