Correlation Between Stepan and Nextera Energy
Can any of the company-specific risk be diversified away by investing in both Stepan and Nextera 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 Stepan and Nextera Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Nextera Energy, you can compare the effects of market volatilities on Stepan and Nextera 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 Stepan with a short position of Nextera Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Nextera Energy.
Diversification Opportunities for Stepan and Nextera Energy
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Stepan and Nextera is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy and Stepan 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 Stepan Company are associated (or correlated) with Nextera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextera Energy has no effect on the direction of Stepan i.e., Stepan and Nextera Energy go up and down completely randomly.
Pair Corralation between Stepan and Nextera Energy
Considering the 90-day investment horizon Stepan Company is expected to under-perform the Nextera Energy. In addition to that, Stepan is 1.25 times more volatile than Nextera Energy. It trades about -0.1 of its total potential returns per unit of risk. Nextera Energy is currently generating about -0.07 per unit of volatility. If you would invest 7,478 in Nextera Energy on September 15, 2024 and sell it today you would lose (116.00) from holding Nextera Energy or give up 1.55% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Nextera Energy
Performance |
| Timeline |
| Stepan Company |
| Nextera Energy |
Stepan and Nextera Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Nextera Energy
The main advantage of trading using opposite Stepan and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Nextera 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 Nextera Energy will offset losses from the drop in Nextera Energy's long position.The idea behind Stepan Company and Nextera Energy 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.| Nextera Energy vs. Centrais Eltricas Brasileiras | Nextera Energy vs. Korea Electric Power | Nextera Energy vs. CMS Energy | Nextera Energy vs. Centrais Electricas Brasileiras |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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