Correlation Between Freedom Bank and NRG Energy

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

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

Diversification Opportunities for Freedom Bank and NRG Energy

0.22

Correlation Coefficient

Freedom Bank  NRG Energy

Modest diversification

The 3 months correlation between Freedom and NRG is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Freedom Bank of and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Freedom Bank 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 Freedom Bank of 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 Freedom Bank i.e., Freedom Bank and NRG Energy go up and down completely randomly.

Pair Corralation between Freedom Bank and NRG Energy

Given the investment horizon of 90 days Freedom Bank of is expected to under-perform the NRG Energy. But the otc stock apears to be less risky and, when comparing its historical volatility, Freedom Bank of is 1.62 times less risky than NRG Energy. The otc stock trades about -0.06 of its potential returns per unit of risk. The NRG Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,988  in NRG Energy on October 4, 2024 and sell it today you would earn a total of  6,034  from holding NRG Energy or generate 201.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.85%
Values	Daily Returns

Freedom Bank of  vs.  NRG Energy

Freedom Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freedom Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Freedom Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

NRG Energy

Risk-Adjusted Performance

0 of 100

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 Freedom Bank and NRG Energy

The main advantage of trading using opposite Freedom Bank and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freedom Bank 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 Freedom Bank of 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.