Correlation Between Analog Devices and NRG Energy

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

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

Diversification Opportunities for Analog Devices and NRG Energy

-0.47

Correlation Coefficient

Analog Devices  NRG Energy

Very good diversification

The 3 months correlation between Analog and NRG is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Analog Devices 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 Analog Devices 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 Analog Devices i.e., Analog Devices and NRG Energy go up and down completely randomly.

Pair Corralation between Analog Devices and NRG Energy

Considering the 90-day investment horizon Analog Devices is expected to generate 0.54 times more return on investment than NRG Energy. However, Analog Devices is 1.84 times less risky than NRG Energy. It trades about -0.01 of its potential returns per unit of risk. NRG Energy is currently generating about -0.09 per unit of risk. If you would invest  21,306  in Analog Devices on September 22, 2024 and sell it today you would lose (128.00) from holding Analog Devices or give up 0.6% of portfolio value over 90 days.

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

Analog Devices  vs.  NRG Energy

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

NRG Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, NRG Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Analog Devices and NRG Energy

The main advantage of trading using opposite Analog Devices and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Analog Devices 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 Analog Devices 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.