Correlation Between Nextera Energy and Energy Transfer

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

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

Diversification Opportunities for Nextera Energy and Energy Transfer

-0.38

Correlation Coefficient

Nextera Energy  Energy Transfer

Very good diversification

The 3 months correlation between Nextera and Energy is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy Partners and Energy Transfer LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Transfer LP 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 Partners are associated (or correlated) with Energy Transfer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Transfer LP has no effect on the direction of Nextera Energy i.e., Nextera Energy and Energy Transfer go up and down completely randomly.

Pair Corralation between Nextera Energy and Energy Transfer

Considering the 90-day investment horizon Nextera Energy Partners is expected to under-perform the Energy Transfer. In addition to that, Nextera Energy is 3.35 times more volatile than Energy Transfer LP. It trades about -0.08 of its total potential returns per unit of risk. Energy Transfer LP is currently generating about 0.13 per unit of volatility. If you would invest  1,151  in Energy Transfer LP on November 20, 2024 and sell it today you would earn a total of  848.00  from holding Energy Transfer LP or generate 73.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.44%
Values	Daily Returns

Nextera Energy Partners  vs.  Energy Transfer LP

Nextera Energy Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nextera Energy Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Energy Transfer LP

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Transfer LP are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Energy Transfer may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Nextera Energy and Energy Transfer

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

The idea behind Nextera Energy Partners and Energy Transfer LP 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.