Correlation Between NRG Energy, and Paycom Software

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

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

Diversification Opportunities for NRG Energy, and Paycom Software

0.75

Correlation Coefficient

NRG Energy,  Paycom Software

Poor diversification

The 3 months correlation between NRG and Paycom is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy, and Paycom Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paycom Software 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 Paycom Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paycom Software has no effect on the direction of NRG Energy, i.e., NRG Energy, and Paycom Software go up and down completely randomly.

Pair Corralation between NRG Energy, and Paycom Software

Assuming the 90 days trading horizon NRG Energy, is expected to generate 1.24 times more return on investment than Paycom Software. However, NRG Energy, is 1.24 times more volatile than Paycom Software. It trades about 0.27 of its potential returns per unit of risk. Paycom Software is currently generating about -0.28 per unit of risk. If you would invest  56,400  in NRG Energy, on October 23, 2024 and sell it today you would earn a total of  7,920  from holding NRG Energy, or generate 14.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.44%
Values	Daily Returns

NRG Energy,  vs.  Paycom Software

NRG Energy,

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy, are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NRG Energy, sustained solid returns over the last few months and may actually be approaching a breakup point.

Paycom Software

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Paycom Software are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Paycom Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NRG Energy, and Paycom Software

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

The idea behind NRG Energy, and Paycom Software 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.