Correlation Between DIVIDEND GROWTH and NextEra Energy

Can any of the company-specific risk be diversified away by investing in both DIVIDEND GROWTH 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 DIVIDEND GROWTH and NextEra Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between DIVIDEND GROWTH SPLIT and NextEra Energy, you can compare the effects of market volatilities on DIVIDEND GROWTH 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 DIVIDEND GROWTH with a short position of NextEra Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of DIVIDEND GROWTH and NextEra Energy.

Diversification Opportunities for DIVIDEND GROWTH and NextEra Energy

0.37

Correlation Coefficient

DIVIDEND GROWTH  NextEra Energy

Weak diversification

The 3 months correlation between DIVIDEND and NextEra is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding DIVIDEND GROWTH SPLIT and NextEra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextEra Energy and DIVIDEND GROWTH 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 DIVIDEND GROWTH SPLIT 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 DIVIDEND GROWTH i.e., DIVIDEND GROWTH and NextEra Energy go up and down completely randomly.

Pair Corralation between DIVIDEND GROWTH and NextEra Energy

Assuming the 90 days horizon DIVIDEND GROWTH SPLIT is expected to generate 1.3 times more return on investment than NextEra Energy. However, DIVIDEND GROWTH is 1.3 times more volatile than NextEra Energy. It trades about -0.01 of its potential returns per unit of risk. NextEra Energy is currently generating about -0.06 per unit of risk. If you would invest  431.00  in DIVIDEND GROWTH SPLIT on December 27, 2024 and sell it today you would lose (13.00) from holding DIVIDEND GROWTH SPLIT or give up 3.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

DIVIDEND GROWTH SPLIT  vs.  NextEra Energy

DIVIDEND GROWTH SPLIT

Risk-Adjusted Performance

Very Weak

Over the last 90 days DIVIDEND GROWTH SPLIT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DIVIDEND GROWTH is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

NextEra Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days NextEra Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with DIVIDEND GROWTH and NextEra Energy

The main advantage of trading using opposite DIVIDEND GROWTH and NextEra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DIVIDEND GROWTH 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 DIVIDEND GROWTH SPLIT 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.

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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 Transaction History module to view history of all your transactions and understand their impact on performance.