Correlation Between Albertsons Companies and NRG Energy

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

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

Diversification Opportunities for Albertsons Companies and NRG Energy

0.37

Correlation Coefficient

Albertsons Companies  NRG Energy

Weak diversification

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

Pair Corralation between Albertsons Companies and NRG Energy

Considering the 90-day investment horizon Albertsons Companies is expected to generate 15.72 times less return on investment than NRG Energy. But when comparing it to its historical volatility, Albertsons Companies is 1.82 times less risky than NRG Energy. It trades about 0.02 of its potential returns per unit of risk. NRG Energy is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  7,877  in NRG Energy on September 4, 2024 and sell it today you would earn a total of  2,063  from holding NRG Energy or generate 26.19% return on investment over 90 days.

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

Albertsons Companies  vs.  NRG Energy

Albertsons Companies

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Albertsons Companies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Albertsons Companies is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

NRG Energy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NRG Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Albertsons Companies and NRG Energy

The main advantage of trading using opposite Albertsons Companies and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Albertsons Companies 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 Albertsons Companies 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.