Correlation Between NextEra Energy and Eversource Energy

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

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

Diversification Opportunities for NextEra Energy and Eversource Energy

0.57

Correlation Coefficient

NextEra Energy  Eversource Energy

Very weak diversification

The 3 months correlation between NextEra and Eversource is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding NextEra Energy and Eversource Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eversource Energy and NextEra Energy 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 NextEra Energy are associated (or correlated) with Eversource Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eversource Energy has no effect on the direction of NextEra Energy i.e., NextEra Energy and Eversource Energy go up and down completely randomly.

Pair Corralation between NextEra Energy and Eversource Energy

Assuming the 90 days horizon NextEra Energy is expected to under-perform the Eversource Energy. But the stock apears to be less risky and, when comparing its historical volatility, NextEra Energy is 1.05 times less risky than Eversource Energy. The stock trades about -0.06 of its potential returns per unit of risk. The Eversource Energy is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  6,027  in Eversource Energy on September 14, 2024 and sell it today you would lose (277.00) from holding Eversource Energy or give up 4.6% of portfolio value over 90 days.

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

NextEra Energy  vs.  Eversource Energy

NextEra Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NextEra Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Eversource Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eversource Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Eversource 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 NextEra Energy and Eversource Energy

The main advantage of trading using opposite NextEra Energy and Eversource Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NextEra Energy position performs unexpectedly, Eversource 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 Eversource Energy will offset losses from the drop in Eversource Energy's long position.

The idea behind NextEra Energy and Eversource 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..