Correlation Between NSTAR Electric and NRG Energy
Can any of the company-specific risk be diversified away by investing in both NSTAR Electric and NRG Energy 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 NSTAR Electric and NRG Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NSTAR Electric and NRG Energy, you can compare the effects of market volatilities on NSTAR Electric and NRG Energy 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 NSTAR Electric with a short position of NRG Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of NSTAR Electric and NRG Energy.
Diversification Opportunities for NSTAR Electric and NRG Energy
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between NSTAR and NRG is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding NSTAR Electric and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and NSTAR Electric 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 NSTAR Electric are associated (or correlated) with NRG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRG Energy has no effect on the direction of NSTAR Electric i.e., NSTAR Electric and NRG Energy go up and down completely randomly.
Pair Corralation between NSTAR Electric and NRG Energy
Assuming the 90 days horizon NSTAR Electric is expected to under-perform the NRG Energy. But the pink sheet apears to be less risky and, when comparing its historical volatility, NSTAR Electric is 1.06 times less risky than NRG Energy. The pink sheet trades about -0.01 of its potential returns per unit of risk. The NRG Energy is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 3,711 in NRG Energy on September 12, 2024 and sell it today you would earn a total of 5,662 from holding NRG Energy or generate 152.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 60.51% |
| Values | Daily Returns |
NSTAR Electric vs. NRG Energy
Performance |
| Timeline |
| NSTAR Electric |
| NRG Energy |
NSTAR Electric and NRG Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NSTAR Electric and NRG Energy
The main advantage of trading using opposite NSTAR Electric and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NSTAR Electric position performs unexpectedly, NRG Energy 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 NRG Energy will offset losses from the drop in NRG Energy's long position.| NSTAR Electric vs. NRG Energy | NSTAR Electric vs. United Utilities Group | NSTAR Electric vs. Celestica | NSTAR Electric vs. United Microelectronics |
| NRG Energy vs. TransAlta Corp | NRG Energy vs. Kenon Holdings | NRG Energy vs. Pampa Energia SA | NRG Energy vs. AGL Energy |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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