Correlation Between NRG Energy, and Citizens Financial

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

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

Diversification Opportunities for NRG Energy, and Citizens Financial

0.89

Correlation Coefficient

NRG Energy,  Citizens Financial

Very poor diversification

The 3 months correlation between NRG and Citizens is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy, and Citizens Financial Group, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens Financial Group, and NRG Energy, 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 NRG Energy, are associated (or correlated) with Citizens Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens Financial Group, has no effect on the direction of NRG Energy, i.e., NRG Energy, and Citizens Financial go up and down completely randomly.

Pair Corralation between NRG Energy, and Citizens Financial

Assuming the 90 days trading horizon NRG Energy, is expected to under-perform the Citizens Financial. But the stock apears to be less risky and, when comparing its historical volatility, NRG Energy, is 1.22 times less risky than Citizens Financial. The stock trades about -0.22 of its potential returns per unit of risk. The Citizens Financial Group, is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  28,420  in Citizens Financial Group, on October 4, 2024 and sell it today you would lose (1,258) from holding Citizens Financial Group, or give up 4.43% of portfolio value over 90 days.

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

NRG Energy,  vs.  Citizens Financial Group,

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

Citizens Financial Group,

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Group, are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Citizens Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NRG Energy, and Citizens Financial

The main advantage of trading using opposite NRG Energy, and Citizens Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NRG Energy, position performs unexpectedly, Citizens Financial 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 Citizens Financial will offset losses from the drop in Citizens Financial's long position.

The idea behind NRG Energy, and Citizens Financial Group, 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.