Correlation Between NRG Energy, and GP Investments

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

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

Diversification Opportunities for NRG Energy, and GP Investments

-0.24

Correlation Coefficient

NRG Energy,  GP Investments

Very good diversification

The 3 months correlation between NRG and GPIV33 is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy, and GP Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GP Investments 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 GP Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GP Investments has no effect on the direction of NRG Energy, i.e., NRG Energy, and GP Investments go up and down completely randomly.

Pair Corralation between NRG Energy, and GP Investments

Assuming the 90 days trading horizon NRG Energy, is expected to under-perform the GP Investments. But the stock apears to be less risky and, when comparing its historical volatility, NRG Energy, is 2.39 times less risky than GP Investments. The stock trades about -0.22 of its potential returns per unit of risk. The GP Investments is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  400.00  in GP Investments on October 4, 2024 and sell it today you would lose (24.00) from holding GP Investments or give up 6.0% of portfolio value over 90 days.

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

NRG Energy,  vs.  GP Investments

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.

GP Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GP Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, GP Investments is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NRG Energy, and GP Investments

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

The idea behind NRG Energy, and GP Investments 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.