Correlation Between NRG Energy and Power Assets

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

By analyzing existing cross correlation between NRG Energy and Power Assets Holdings, you can compare the effects of market volatilities on NRG Energy and Power Assets 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 NRG Energy with a short position of Power Assets. Check out your portfolio center. Please also check ongoing floating volatility patterns of NRG Energy and Power Assets.

Diversification Opportunities for NRG Energy and Power Assets

0.43

Correlation Coefficient

NRG Energy  Power Assets

Very weak diversification

The 3 months correlation between NRG and Power is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Power Assets Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Assets Holdings and NRG 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 NRG Energy are associated (or correlated) with Power Assets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Assets Holdings has no effect on the direction of NRG Energy i.e., NRG Energy and Power Assets go up and down completely randomly.

Pair Corralation between NRG Energy and Power Assets

Assuming the 90 days horizon NRG Energy is expected to under-perform the Power Assets. In addition to that, NRG Energy is 1.38 times more volatile than Power Assets Holdings. It trades about -0.32 of its total potential returns per unit of risk. Power Assets Holdings is currently generating about 0.37 per unit of volatility. If you would invest  615.00  in Power Assets Holdings on October 1, 2024 and sell it today you would earn a total of  45.00  from holding Power Assets Holdings or generate 7.32% return on investment over 90 days.

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

NRG Energy  vs.  Power Assets Holdings

NRG Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NRG Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Power Assets Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Power Assets Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Power Assets reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NRG Energy and Power Assets

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

The idea behind NRG Energy and Power Assets Holdings 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .