Correlation Between National Retail and NRG Energy

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

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

Diversification Opportunities for National Retail and NRG Energy

-0.4

Correlation Coefficient

National Retail  NRG Energy

Very good diversification

The 3 months correlation between National and NRG is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding National Retail Properties and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and National Retail 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 National Retail Properties 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 National Retail i.e., National Retail and NRG Energy go up and down completely randomly.

Pair Corralation between National Retail and NRG Energy

Assuming the 90 days trading horizon National Retail is expected to generate 30.19 times less return on investment than NRG Energy. But when comparing it to its historical volatility, National Retail Properties is 1.71 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 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,768  in NRG Energy on October 4, 2024 and sell it today you would earn a total of  5,992  from holding NRG Energy or generate 216.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

National Retail Properties  vs.  NRG Energy

National Retail Prop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Retail Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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

Pair Trading with National Retail and NRG Energy

The main advantage of trading using opposite National Retail and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Retail 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 National Retail Properties 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.