Correlation Between Nextera Energy and National Grid

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

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

Diversification Opportunities for Nextera Energy and National Grid

0.94

Correlation Coefficient

Nextera Energy  National Grid

Almost no diversification

The 3 months correlation between Nextera and National is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy and National Grid PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid PLC 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid PLC has no effect on the direction of Nextera Energy i.e., Nextera Energy and National Grid go up and down completely randomly.

Pair Corralation between Nextera Energy and National Grid

Considering the 90-day investment horizon Nextera Energy is expected to under-perform the National Grid. In addition to that, Nextera Energy is 1.1 times more volatile than National Grid PLC. It trades about -0.35 of its total potential returns per unit of risk. National Grid PLC is currently generating about -0.34 per unit of volatility. If you would invest  6,333  in National Grid PLC on September 28, 2024 and sell it today you would lose (441.00) from holding National Grid PLC or give up 6.96% of portfolio value over 90 days.

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

Nextera Energy  vs.  National Grid PLC

Nextera Energy

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

National Grid PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Grid PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Nextera Energy and National Grid

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

The idea behind Nextera Energy and National Grid PLC 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.