Correlation Between Marine Products and NRG Energy

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

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

Diversification Opportunities for Marine Products and NRG Energy

0.33

Correlation Coefficient

Marine Products  NRG Energy

Weak diversification

The 3 months correlation between Marine and NRG is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Marine Products and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Marine Products 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 Marine Products 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 Marine Products i.e., Marine Products and NRG Energy go up and down completely randomly.

Pair Corralation between Marine Products and NRG Energy

Considering the 90-day investment horizon Marine Products is expected to under-perform the NRG Energy. In addition to that, Marine Products is 1.26 times more volatile than NRG Energy. It trades about -0.01 of its total potential returns per unit of risk. NRG Energy is currently generating about 0.13 per unit of volatility. If you would invest  3,039  in NRG Energy on October 12, 2024 and sell it today you would earn a total of  6,815  from holding NRG Energy or generate 224.25% return on investment over 90 days.

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

Marine Products  vs.  NRG Energy

Marine Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marine Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 unsteady basic indicators, NRG Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Marine Products and NRG Energy

The main advantage of trading using opposite Marine Products and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marine Products 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 Marine Products 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.