Correlation Between WisdomTree Investments and NRG ENERGY

Can any of the company-specific risk be diversified away by investing in both WisdomTree Investments 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 WisdomTree Investments and NRG ENERGY into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between WisdomTree Investments and NRG ENERGY, you can compare the effects of market volatilities on WisdomTree Investments 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 WisdomTree Investments with a short position of NRG ENERGY. Check out your portfolio center. Please also check ongoing floating volatility patterns of WisdomTree Investments and NRG ENERGY.

Diversification Opportunities for WisdomTree Investments and NRG ENERGY

0.74

Correlation Coefficient

WisdomTree Investments  NRG ENERGY

Poor diversification

The 3 months correlation between WisdomTree and NRG is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree Investments and NRG ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG ENERGY and WisdomTree Investments 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 WisdomTree Investments 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 WisdomTree Investments i.e., WisdomTree Investments and NRG ENERGY go up and down completely randomly.

Pair Corralation between WisdomTree Investments and NRG ENERGY

Assuming the 90 days horizon WisdomTree Investments is expected to generate 1.83 times less return on investment than NRG ENERGY. In addition to that, WisdomTree Investments is 1.48 times more volatile than NRG ENERGY. It trades about 0.04 of its total potential returns per unit of risk. NRG ENERGY is currently generating about 0.1 per unit of volatility. If you would invest  8,354  in NRG ENERGY on October 6, 2024 and sell it today you would earn a total of  636.00  from holding NRG ENERGY or generate 7.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.5%
Values	Daily Returns

WisdomTree Investments  vs.  NRG ENERGY

WisdomTree Investments

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Investments are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, WisdomTree Investments reported solid returns over the last few months and may actually be approaching a breakup point.

NRG ENERGY

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NRG ENERGY are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, NRG ENERGY may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with WisdomTree Investments and NRG ENERGY

The main advantage of trading using opposite WisdomTree Investments and NRG ENERGY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree Investments 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.

The idea behind WisdomTree Investments and NRG 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.

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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.