Correlation Between Engie SA and Nextera Energy

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

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

Diversification Opportunities for Engie SA and Nextera Energy

0.2

Correlation Coefficient

Engie SA  Nextera Energy

Modest diversification

The 3 months correlation between Engie and Nextera is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Engie SA ADR and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy and Engie SA 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 Engie SA ADR 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 Engie SA i.e., Engie SA and Nextera Energy go up and down completely randomly.

Pair Corralation between Engie SA and Nextera Energy

Assuming the 90 days horizon Engie SA ADR is expected to generate 0.71 times more return on investment than Nextera Energy. However, Engie SA ADR is 1.41 times less risky than Nextera Energy. It trades about 0.3 of its potential returns per unit of risk. Nextera Energy is currently generating about -0.01 per unit of risk. If you would invest  1,586  in Engie SA ADR on December 30, 2024 and sell it today you would earn a total of  371.00  from holding Engie SA ADR or generate 23.39% return on investment over 90 days.

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

Engie SA ADR  vs.  Nextera Energy

Engie SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Engie SA ADR are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Engie SA showed solid returns over the last few months and may actually be approaching a breakup point.

Nextera Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nextera Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Nextera Energy is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Engie SA and Nextera Energy

The main advantage of trading using opposite Engie SA and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Engie SA 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 Engie SA ADR 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.

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.