Correlation Between CGN Power and NRG Energy

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

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

Diversification Opportunities for CGN Power and NRG Energy

0.23

Correlation Coefficient

CGN Power  NRG Energy

Modest diversification

The 3 months correlation between CGN and NRG is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding CGN Power Co and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and CGN Power 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 CGN Power Co 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 CGN Power i.e., CGN Power and NRG Energy go up and down completely randomly.

Pair Corralation between CGN Power and NRG Energy

Assuming the 90 days horizon CGN Power Co is expected to generate 5.02 times more return on investment than NRG Energy. However, CGN Power is 5.02 times more volatile than NRG Energy. It trades about 0.08 of its potential returns per unit of risk. NRG Energy is currently generating about 0.06 per unit of risk. If you would invest  23.00  in CGN Power Co on October 1, 2024 and sell it today you would earn a total of  5.00  from holding CGN Power Co or generate 21.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

CGN Power Co  vs.  NRG Energy

CGN Power

Risk-Adjusted Performance

6 of 100

Modest

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

NRG Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NRG Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CGN Power and NRG Energy

The main advantage of trading using opposite CGN Power and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CGN Power 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 CGN Power Co 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.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.