Correlation Between CN DATANG and NRG ENERGY

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

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

Diversification Opportunities for CN DATANG and NRG ENERGY

0.4

Correlation Coefficient

CN DATANG  NRG ENERGY

Very weak diversification

The 3 months correlation between DT7 and NRG is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding CN DATANG C and NRG ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG ENERGY and CN DATANG 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 CN DATANG C 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 CN DATANG i.e., CN DATANG and NRG ENERGY go up and down completely randomly.

Pair Corralation between CN DATANG and NRG ENERGY

Assuming the 90 days trading horizon CN DATANG C is expected to under-perform the NRG ENERGY. But the stock apears to be less risky and, when comparing its historical volatility, CN DATANG C is 1.14 times less risky than NRG ENERGY. The stock trades about -0.09 of its potential returns per unit of risk. The NRG ENERGY is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest  8,702  in NRG ENERGY on October 25, 2024 and sell it today you would earn a total of  1,893  from holding NRG ENERGY or generate 21.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

CN DATANG C  vs.  NRG ENERGY

CN DATANG C

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CN DATANG C are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, CN DATANG may actually be approaching a critical reversion point that can send shares even higher in February 2025.

NRG ENERGY

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NRG ENERGY are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, NRG ENERGY unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CN DATANG and NRG ENERGY

The main advantage of trading using opposite CN DATANG and NRG ENERGY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CN DATANG 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 CN DATANG C 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.