Correlation Between SSE PLC and Nextera Energy
Can any of the company-specific risk be diversified away by investing in both SSE PLC 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 SSE PLC and Nextera Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SSE PLC ADR and Nextera Energy, you can compare the effects of market volatilities on SSE PLC 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 SSE PLC with a short position of Nextera Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of SSE PLC and Nextera Energy.
Diversification Opportunities for SSE PLC and Nextera Energy
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between SSE and Nextera is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding SSE PLC ADR and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy and SSE PLC 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 SSE PLC ADR 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 SSE PLC i.e., SSE PLC and Nextera Energy go up and down completely randomly.
Pair Corralation between SSE PLC and Nextera Energy
Assuming the 90 days horizon SSE PLC is expected to generate 253.0 times less return on investment than Nextera Energy. But when comparing it to its historical volatility, SSE PLC ADR is 1.29 times less risky than Nextera Energy. It trades about 0.0 of its potential returns per unit of risk. Nextera Energy is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 4,266 in Nextera Energy on September 3, 2024 and sell it today you would earn a total of 62.00 from holding Nextera Energy or generate 1.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SSE PLC ADR vs. Nextera Energy
Performance |
| Timeline |
| SSE PLC ADR |
| Nextera Energy |
SSE PLC and Nextera Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SSE PLC and Nextera Energy
The main advantage of trading using opposite SSE PLC and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SSE PLC 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.| SSE PLC vs. ENEL Societa per | SSE PLC vs. Allete Inc | SSE PLC vs. Companhia Energetica de | SSE PLC vs. The AES |
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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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