Correlation Between National Grid and RWE Aktiengesellscha

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

By analyzing existing cross correlation between National Grid plc and RWE Aktiengesellschaft, you can compare the effects of market volatilities on National Grid and RWE Aktiengesellscha 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 National Grid with a short position of RWE Aktiengesellscha. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Grid and RWE Aktiengesellscha.

Diversification Opportunities for National Grid and RWE Aktiengesellscha

0.7

Correlation Coefficient

National Grid  RWE Aktiengesellscha

Poor diversification

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

Pair Corralation between National Grid and RWE Aktiengesellscha

Assuming the 90 days trading horizon National Grid plc is expected to generate 0.84 times more return on investment than RWE Aktiengesellscha. However, National Grid plc is 1.19 times less risky than RWE Aktiengesellscha. It trades about 0.04 of its potential returns per unit of risk. RWE Aktiengesellschaft is currently generating about -0.02 per unit of risk. If you would invest  4,838  in National Grid plc on October 8, 2024 and sell it today you would earn a total of  912.00  from holding National Grid plc or generate 18.85% return on investment over 90 days.

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

National Grid plc  vs.  RWE Aktiengesellschaft

National Grid plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Grid plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, National Grid is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

RWE Aktiengesellschaft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RWE Aktiengesellschaft has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, RWE Aktiengesellscha is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with National Grid and RWE Aktiengesellscha

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

The idea behind National Grid plc and RWE Aktiengesellschaft 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.