Correlation Between Huaneng Power and NRG Energy

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

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

Diversification Opportunities for Huaneng Power and NRG Energy

-0.38

Correlation Coefficient

Huaneng Power  NRG Energy

Very good diversification

The 3 months correlation between Huaneng and NRG is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Huaneng Power International and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Huaneng Power 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 Huaneng Power International 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 Huaneng Power i.e., Huaneng Power and NRG Energy go up and down completely randomly.

Pair Corralation between Huaneng Power and NRG Energy

Assuming the 90 days trading horizon Huaneng Power International is expected to under-perform the NRG Energy. But the stock apears to be less risky and, when comparing its historical volatility, Huaneng Power International is 1.26 times less risky than NRG Energy. The stock trades about -0.01 of its potential returns per unit of risk. The NRG Energy is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7,729  in NRG Energy on September 22, 2024 and sell it today you would earn a total of  775.00  from holding NRG Energy or generate 10.03% return on investment over 90 days.

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

Huaneng Power International  vs.  NRG Energy

Huaneng Power Intern

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Huaneng Power International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Huaneng Power is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

NRG Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NRG Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Huaneng Power and NRG Energy

The main advantage of trading using opposite Huaneng Power and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Huaneng Power 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 Huaneng Power International 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 Transaction History module to view history of all your transactions and understand their impact on performance.