Correlation Between China Resources and NRG Energy

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

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

Diversification Opportunities for China Resources and NRG Energy

-0.39

Correlation Coefficient

China Resources  NRG Energy

Very good diversification

The 3 months correlation between China and NRG is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Beer and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and China Resources 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 China Resources Beer 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 China Resources i.e., China Resources and NRG Energy go up and down completely randomly.

Pair Corralation between China Resources and NRG Energy

Assuming the 90 days horizon China Resources Beer is expected to generate 0.73 times more return on investment than NRG Energy. However, China Resources Beer is 1.37 times less risky than NRG Energy. It trades about 0.03 of its potential returns per unit of risk. NRG Energy is currently generating about 0.01 per unit of risk. If you would invest  308.00  in China Resources Beer on December 18, 2024 and sell it today you would earn a total of  8.00  from holding China Resources Beer or generate 2.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

China Resources Beer  vs.  NRG Energy

China Resources Beer

Risk-Adjusted Performance

Weak

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

NRG Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days NRG Energy has generated negative risk-adjusted returns adding no value to investors with long positions. 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 China Resources and NRG Energy

The main advantage of trading using opposite China Resources and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Resources 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 China Resources Beer 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.