Correlation Between LB Foster and Nextera Energy

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

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

Diversification Opportunities for LB Foster and Nextera Energy

-0.36

Correlation Coefficient

LB Foster  Nextera Energy

Very good diversification

The 3 months correlation between FSTR and Nextera is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding LB Foster and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy and LB Foster 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 LB Foster 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 LB Foster i.e., LB Foster and Nextera Energy go up and down completely randomly.

Pair Corralation between LB Foster and Nextera Energy

Given the investment horizon of 90 days LB Foster is expected to under-perform the Nextera Energy. In addition to that, LB Foster is 1.55 times more volatile than Nextera Energy. It trades about -0.14 of its total potential returns per unit of risk. Nextera Energy is currently generating about 0.03 per unit of volatility. If you would invest  6,920  in Nextera Energy on December 19, 2024 and sell it today you would earn a total of  150.00  from holding Nextera Energy or generate 2.17% return on investment over 90 days.

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

LB Foster  vs.  Nextera Energy

LB Foster

Risk-Adjusted Performance

Very Weak

Over the last 90 days LB Foster has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Nextera Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nextera Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Nextera Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with LB Foster and Nextera Energy

The main advantage of trading using opposite LB Foster and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LB Foster 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 LB Foster 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.