Correlation Between AutoZone and NRG Energy

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

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

Diversification Opportunities for AutoZone and NRG Energy

0.61

Correlation Coefficient

AutoZone  NRG Energy

Poor diversification

The 3 months correlation between AutoZone and NRG is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding AutoZone and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and AutoZone 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 AutoZone 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 AutoZone i.e., AutoZone and NRG Energy go up and down completely randomly.

Pair Corralation between AutoZone and NRG Energy

Assuming the 90 days horizon AutoZone is expected to generate 0.6 times more return on investment than NRG Energy. However, AutoZone is 1.66 times less risky than NRG Energy. It trades about 0.09 of its potential returns per unit of risk. NRG Energy is currently generating about -0.27 per unit of risk. If you would invest  304,300  in AutoZone on October 4, 2024 and sell it today you would earn a total of  4,200  from holding AutoZone or generate 1.38% return on investment over 90 days.

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

AutoZone  vs.  NRG Energy

AutoZone

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AutoZone may actually be approaching a critical reversion point that can send shares even higher in February 2025.

NRG Energy

Risk-Adjusted Performance

2 of 100

Insignificant

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AutoZone and NRG Energy

The main advantage of trading using opposite AutoZone and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AutoZone 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 AutoZone 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.