Correlation Between ArcelorMittal and NRG Energy,

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

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

Diversification Opportunities for ArcelorMittal and NRG Energy,

0.79

Correlation Coefficient

ArcelorMittal  NRG Energy,

Poor diversification

The 3 months correlation between ArcelorMittal and NRG is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal SA and NRG Energy, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy, and ArcelorMittal 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 ArcelorMittal SA 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 ArcelorMittal i.e., ArcelorMittal and NRG Energy, go up and down completely randomly.

Pair Corralation between ArcelorMittal and NRG Energy,

Assuming the 90 days trading horizon ArcelorMittal SA is expected to under-perform the NRG Energy,. But the stock apears to be less risky and, when comparing its historical volatility, ArcelorMittal SA is 2.18 times less risky than NRG Energy,. The stock trades about -0.39 of its potential returns per unit of risk. The NRG Energy, is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  60,678  in NRG Energy, on October 6, 2024 and sell it today you would lose (4,288) from holding NRG Energy, or give up 7.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

ArcelorMittal SA  vs.  NRG Energy,

ArcelorMittal SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ArcelorMittal SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, ArcelorMittal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NRG Energy,

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy, are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NRG Energy, may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ArcelorMittal and NRG Energy,

The main advantage of trading using opposite ArcelorMittal and NRG Energy, positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ArcelorMittal 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 ArcelorMittal SA 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..