Correlation Between Nextera Energy and Red Electrica

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

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

Diversification Opportunities for Nextera Energy and Red Electrica

0.13

Correlation Coefficient

Nextera Energy  Red Electrica

Average diversification

The 3 months correlation between Nextera and Red is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy and Red Electrica Corporacion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Electrica Corporacion 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 Red Electrica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Electrica Corporacion has no effect on the direction of Nextera Energy i.e., Nextera Energy and Red Electrica go up and down completely randomly.

Pair Corralation between Nextera Energy and Red Electrica

Assuming the 90 days trading horizon Nextera Energy is expected to under-perform the Red Electrica. In addition to that, Nextera Energy is 1.31 times more volatile than Red Electrica Corporacion. It trades about -0.01 of its total potential returns per unit of risk. Red Electrica Corporacion is currently generating about 0.21 per unit of volatility. If you would invest  850.00  in Red Electrica Corporacion on December 29, 2024 and sell it today you would earn a total of  146.00  from holding Red Electrica Corporacion or generate 17.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Nextera Energy  vs.  Red Electrica Corporacion

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.

Red Electrica Corporacion

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Red Electrica Corporacion are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Red Electrica showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nextera Energy and Red Electrica

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

The idea behind Nextera Energy and Red Electrica Corporacion 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.