Correlation Between Hexcel and NRG Energy

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

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

Diversification Opportunities for Hexcel and NRG Energy

0.62

Correlation Coefficient

Hexcel  NRG Energy

Poor diversification

The 3 months correlation between Hexcel and NRG is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Hexcel 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 Hexcel 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 Hexcel i.e., Hexcel and NRG Energy go up and down completely randomly.

Pair Corralation between Hexcel and NRG Energy

Assuming the 90 days horizon Hexcel is expected to generate 1.05 times more return on investment than NRG Energy. However, Hexcel is 1.05 times more volatile than NRG Energy. It trades about -0.02 of its potential returns per unit of risk. NRG Energy is currently generating about -0.27 per unit of risk. If you would invest  6,050  in Hexcel on October 4, 2024 and sell it today you would lose (50.00) from holding Hexcel or give up 0.83% of portfolio value over 90 days.

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

Hexcel  vs.  NRG Energy

Hexcel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hexcel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hexcel may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Hexcel and NRG Energy

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

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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.