Correlation Between NRG ENERGY and Dairy Farm

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

By analyzing existing cross correlation between NRG ENERGY and Dairy Farm International, you can compare the effects of market volatilities on NRG ENERGY and Dairy Farm 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 Dairy Farm. Check out your portfolio center. Please also check ongoing floating volatility patterns of NRG ENERGY and Dairy Farm.

Diversification Opportunities for NRG ENERGY and Dairy Farm

0.4

Correlation Coefficient

NRG ENERGY  Dairy Farm

Very weak diversification

The 3 months correlation between NRG and Dairy is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding NRG ENERGY and Dairy Farm International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dairy Farm International 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 Dairy Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dairy Farm International has no effect on the direction of NRG ENERGY i.e., NRG ENERGY and Dairy Farm go up and down completely randomly.

Pair Corralation between NRG ENERGY and Dairy Farm

Assuming the 90 days trading horizon NRG ENERGY is expected to generate 0.93 times more return on investment than Dairy Farm. However, NRG ENERGY is 1.07 times less risky than Dairy Farm. It trades about 0.12 of its potential returns per unit of risk. Dairy Farm International is currently generating about -0.01 per unit of risk. If you would invest  2,927  in NRG ENERGY on October 24, 2024 and sell it today you would earn a total of  7,508  from holding NRG ENERGY or generate 256.51% 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.  Dairy Farm International

NRG ENERGY

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NRG ENERGY are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, NRG ENERGY unveiled solid returns over the last few months and may actually be approaching a breakup point.

Dairy Farm International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with NRG ENERGY and Dairy Farm

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

The idea behind NRG ENERGY and Dairy Farm International 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.