Correlation Between Park Hotels and NRG Energy

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

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

Diversification Opportunities for Park Hotels and NRG Energy

0.86

Correlation Coefficient

Park Hotels  NRG Energy

Very poor diversification

The 3 months correlation between Park and NRG is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Park Hotels Resorts and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Park Hotels 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 Park Hotels Resorts 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 Park Hotels i.e., Park Hotels and NRG Energy go up and down completely randomly.

Pair Corralation between Park Hotels and NRG Energy

Assuming the 90 days trading horizon Park Hotels Resorts is expected to under-perform the NRG Energy. In addition to that, Park Hotels is 1.5 times more volatile than NRG Energy. It trades about -0.29 of its total potential returns per unit of risk. NRG Energy is currently generating about -0.27 per unit of volatility. If you would invest  9,418  in NRG Energy on October 4, 2024 and sell it today you would lose (658.00) from holding NRG Energy or give up 6.99% of portfolio value over 90 days.

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

Park Hotels Resorts  vs.  NRG Energy

Park Hotels Resorts

Risk-Adjusted Performance

2 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Park Hotels Resorts are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Park Hotels is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

NRG Energy

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, NRG 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 Park Hotels and NRG Energy

The main advantage of trading using opposite Park Hotels and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Park Hotels 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 Park Hotels Resorts 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.