Correlation Between JD Sports and Nextera Energy

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

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

Diversification Opportunities for JD Sports and Nextera Energy

0.86

Correlation Coefficient

JD Sports  Nextera Energy

Very poor diversification

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

Pair Corralation between JD Sports and Nextera Energy

Assuming the 90 days horizon JD Sports Fashion is expected to under-perform the Nextera Energy. In addition to that, JD Sports is 2.6 times more volatile than Nextera Energy. It trades about -0.04 of its total potential returns per unit of risk. Nextera Energy is currently generating about 0.06 per unit of volatility. If you would invest  5,851  in Nextera Energy on September 20, 2024 and sell it today you would earn a total of  1,376  from holding Nextera Energy or generate 23.52% return on investment over 90 days.

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

JD Sports Fashion  vs.  Nextera Energy

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Nextera Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextera Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with JD Sports and Nextera Energy

The main advantage of trading using opposite JD Sports and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JD Sports 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 JD Sports Fashion 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.