Correlation Between TransAlta Corp and NRG Energy
Can any of the company-specific risk be diversified away by investing in both TransAlta Corp 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 TransAlta Corp and NRG Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TransAlta Corp and NRG Energy, you can compare the effects of market volatilities on TransAlta Corp 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 TransAlta Corp with a short position of NRG Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of TransAlta Corp and NRG Energy.
Diversification Opportunities for TransAlta Corp and NRG Energy
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between TransAlta and NRG is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding TransAlta Corp and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and TransAlta Corp 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 TransAlta Corp 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 TransAlta Corp i.e., TransAlta Corp and NRG Energy go up and down completely randomly.
Pair Corralation between TransAlta Corp and NRG Energy
Considering the 90-day investment horizon TransAlta Corp is expected to generate 3.99 times less return on investment than NRG Energy. But when comparing it to its historical volatility, TransAlta Corp is 1.08 times less risky than NRG Energy. It trades about 0.03 of its potential returns per unit of risk. NRG Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3,867 in NRG Energy on August 23, 2024 and sell it today you would earn a total of 5,822 from holding NRG Energy or generate 150.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
TransAlta Corp vs. NRG Energy
Performance |
| Timeline |
| TransAlta Corp |
| NRG Energy |
TransAlta Corp and NRG Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TransAlta Corp and NRG Energy
The main advantage of trading using opposite TransAlta Corp and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TransAlta Corp 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.| TransAlta Corp vs. Pampa Energia SA | TransAlta Corp vs. Vistra Energy Corp | TransAlta Corp vs. NRG Energy | TransAlta Corp vs. Power Assets Holdings |
| 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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