Correlation Between Nextera Energy and NorthWestern

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

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

Diversification Opportunities for Nextera Energy and NorthWestern

0.7

Correlation Coefficient

Nextera Energy  NorthWestern

Poor diversification

The 3 months correlation between Nextera and NorthWestern is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern 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 NorthWestern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorthWestern has no effect on the direction of Nextera Energy i.e., Nextera Energy and NorthWestern go up and down completely randomly.

Pair Corralation between Nextera Energy and NorthWestern

Considering the 90-day investment horizon Nextera Energy is expected to under-perform the NorthWestern. In addition to that, Nextera Energy is 1.36 times more volatile than NorthWestern. It trades about 0.0 of its total potential returns per unit of risk. NorthWestern is currently generating about 0.01 per unit of volatility. If you would invest  5,313  in NorthWestern on September 29, 2024 and sell it today you would earn a total of  32.00  from holding NorthWestern or generate 0.6% return on investment over 90 days.

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

Nextera Energy  vs.  NorthWestern

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 fragile 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.

NorthWestern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NorthWestern has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, NorthWestern is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Nextera Energy and NorthWestern

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

The idea behind Nextera Energy and NorthWestern 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.