Correlation Between Alphabet and NextEra Energy

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

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

Diversification Opportunities for Alphabet and NextEra Energy

0.19

Correlation Coefficient

Alphabet  NextEra Energy

Average diversification

The 3 months correlation between Alphabet and NextEra is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and NextEra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextEra Energy and Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and NextEra Energy go up and down completely randomly.

Pair Corralation between Alphabet and NextEra Energy

Given the investment horizon of 90 days Alphabet Inc Class C is expected to under-perform the NextEra Energy. But the stock apears to be less risky and, when comparing its historical volatility, Alphabet Inc Class C is 1.07 times less risky than NextEra Energy. The stock trades about -0.14 of its potential returns per unit of risk. The NextEra Energy is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  6,867  in NextEra Energy on December 24, 2024 and sell it today you would lose (367.00) from holding NextEra Energy or give up 5.34% of portfolio value over 90 days.

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

Alphabet Inc Class C  vs.  NextEra Energy

Alphabet Class C

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alphabet Inc Class C has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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. Despite nearly stable basic indicators, NextEra Energy is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Alphabet and NextEra Energy

The main advantage of trading using opposite Alphabet and NextEra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.