Correlation Between Maxim Power and NRG Energy

Can any of the company-specific risk be diversified away by investing in both Maxim 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 Maxim 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 Maxim Power Corp and NRG Energy, you can compare the effects of market volatilities on Maxim 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 Maxim Power with a short position of NRG Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maxim Power and NRG Energy.

Diversification Opportunities for Maxim Power and NRG Energy

0.56

Correlation Coefficient

Maxim Power  NRG Energy

Very weak diversification

The 3 months correlation between Maxim and NRG is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Maxim Power Corp and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Maxim 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 Maxim Power Corp 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 Maxim Power i.e., Maxim Power and NRG Energy go up and down completely randomly.

Pair Corralation between Maxim Power and NRG Energy

Assuming the 90 days horizon Maxim Power is expected to generate 4.73 times less return on investment than NRG Energy. But when comparing it to its historical volatility, Maxim Power Corp is 1.17 times less risky than NRG Energy. It trades about 0.03 of its potential returns per unit of risk. NRG Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,672  in NRG Energy on October 3, 2024 and sell it today you would earn a total of  4,350  from holding NRG Energy or generate 93.11% return on investment over 90 days.

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

Maxim Power Corp  vs.  NRG Energy

Maxim Power Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Maxim Power Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Maxim Power reported solid returns over the last few months and may actually be approaching a breakup point.

NRG Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NRG Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NRG Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Maxim Power and NRG Energy

The main advantage of trading using opposite Maxim Power and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Maxim 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 Maxim Power Corp 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.