Correlation Between Nextera Energy and Engie SA

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

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

Diversification Opportunities for Nextera Energy and Engie SA

0.2

Correlation Coefficient

Nextera Energy  Engie SA

Modest diversification

The 3 months correlation between Nextera and Engie is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy and Engie SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engie SA ADR and Nextera 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 Nextera Energy are associated (or correlated) with Engie SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engie SA ADR has no effect on the direction of Nextera Energy i.e., Nextera Energy and Engie SA go up and down completely randomly.

Pair Corralation between Nextera Energy and Engie SA

Assuming the 90 days trading horizon Nextera Energy is expected to under-perform the Engie SA. In addition to that, Nextera Energy is 1.41 times more volatile than Engie SA ADR. It trades about -0.01 of its total potential returns per unit of risk. Engie SA ADR is currently generating about 0.3 per unit of volatility. If you would invest  1,586  in Engie SA ADR on December 30, 2024 and sell it today you would earn a total of  371.00  from holding Engie SA ADR or generate 23.39% return on investment over 90 days.

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

Nextera Energy  vs.  Engie SA ADR

Nextera Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nextera Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Nextera Energy is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Engie SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Engie SA ADR are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Engie SA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nextera Energy and Engie SA

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

The idea behind Nextera Energy and Engie SA ADR 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 Stocks Directory module to find actively traded stocks across global markets.