Correlation Between NRG Energy and RYANAIR HLDGS

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

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

Diversification Opportunities for NRG Energy and RYANAIR HLDGS

-0.05

Correlation Coefficient

NRG Energy  RYANAIR HLDGS

Good diversification

The 3 months correlation between NRG and RYANAIR is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and RYANAIR HLDGS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RYANAIR HLDGS ADR 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 RYANAIR HLDGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RYANAIR HLDGS ADR has no effect on the direction of NRG Energy i.e., NRG Energy and RYANAIR HLDGS go up and down completely randomly.

Pair Corralation between NRG Energy and RYANAIR HLDGS

Assuming the 90 days horizon NRG Energy is expected to generate 3.45 times less return on investment than RYANAIR HLDGS. But when comparing it to its historical volatility, NRG Energy is 5.78 times less risky than RYANAIR HLDGS. It trades about 0.08 of its potential returns per unit of risk. RYANAIR HLDGS ADR is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,241  in RYANAIR HLDGS ADR on October 4, 2024 and sell it today you would lose (41.00) from holding RYANAIR HLDGS ADR or give up 0.97% of portfolio value over 90 days.

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

NRG Energy  vs.  RYANAIR HLDGS ADR

NRG Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, NRG Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

RYANAIR HLDGS ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RYANAIR HLDGS ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, RYANAIR HLDGS may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NRG Energy and RYANAIR HLDGS

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

The idea behind NRG Energy and RYANAIR HLDGS ADR 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.