Correlation Between CEZ A and NextEra Energy

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

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

Diversification Opportunities for CEZ A and NextEra Energy

-0.5

Correlation Coefficient

CEZ A  NextEra Energy

Very good diversification

The 3 months correlation between CEZ and NextEra is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding CEZ a s and NextEra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextEra Energy and CEZ A 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 CEZ a s are associated (or correlated) with NextEra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextEra Energy has no effect on the direction of CEZ A i.e., CEZ A and NextEra Energy go up and down completely randomly.

Pair Corralation between CEZ A and NextEra Energy

Assuming the 90 days horizon CEZ a s is expected to generate 0.79 times more return on investment than NextEra Energy. However, CEZ a s is 1.26 times less risky than NextEra Energy. It trades about 0.34 of its potential returns per unit of risk. NextEra Energy is currently generating about 0.02 per unit of risk. If you would invest  3,526  in CEZ a s on September 14, 2024 and sell it today you would earn a total of  252.00  from holding CEZ a s or generate 7.15% return on investment over 90 days.

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

CEZ a s  vs.  NextEra Energy

CEZ a s

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CEZ a s are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CEZ A may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NextEra Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NextEra Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with CEZ A and NextEra Energy

The main advantage of trading using opposite CEZ A and NextEra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CEZ A position performs unexpectedly, NextEra 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 NextEra Energy will offset losses from the drop in NextEra Energy's long position.

The idea behind CEZ a s and NextEra 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.