Correlation Between NextEra Energy, and China Southern

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

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

Diversification Opportunities for NextEra Energy, and China Southern

-0.01

Correlation Coefficient

NextEra Energy,  China Southern

Good diversification

The 3 months correlation between NextEra and China is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding NextEra Energy, and China Southern Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Southern Airlines 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 China Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Southern Airlines has no effect on the direction of NextEra Energy, i.e., NextEra Energy, and China Southern go up and down completely randomly.

Pair Corralation between NextEra Energy, and China Southern

Assuming the 90 days trading horizon NextEra Energy, is expected to generate 0.56 times more return on investment than China Southern. However, NextEra Energy, is 1.78 times less risky than China Southern. It trades about -0.02 of its potential returns per unit of risk. China Southern Airlines is currently generating about -0.18 per unit of risk. If you would invest  4,894  in NextEra Energy, on December 20, 2024 and sell it today you would lose (89.00) from holding NextEra Energy, or give up 1.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.67%
Values	Daily Returns

NextEra Energy,  vs.  China Southern Airlines

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. In spite of comparatively stable technical and fundamental indicators, NextEra Energy, is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

China Southern Airlines

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Southern Airlines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NextEra Energy, and China Southern

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

The idea behind NextEra Energy, and China Southern Airlines 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 Global Correlations module to find global opportunities by holding instruments from different markets.