Correlation Between NRG ENERGY and Apple

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

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

Diversification Opportunities for NRG ENERGY and Apple

0.26

Correlation Coefficient

NRG ENERGY  Apple

Modest diversification

The 3 months correlation between NRG and Apple is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding NRG ENERGY and Apple Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Apple Inc 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 Apple. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Apple Inc has no effect on the direction of NRG ENERGY i.e., NRG ENERGY and Apple go up and down completely randomly.

Pair Corralation between NRG ENERGY and Apple

Assuming the 90 days trading horizon NRG ENERGY is expected to generate 1.55 times more return on investment than Apple. However, NRG ENERGY is 1.55 times more volatile than Apple Inc. It trades about 0.13 of its potential returns per unit of risk. Apple Inc is currently generating about 0.07 per unit of risk. If you would invest  3,000  in NRG ENERGY on October 26, 2024 and sell it today you would earn a total of  7,590  from holding NRG ENERGY or generate 253.0% return on investment over 90 days.

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

NRG ENERGY  vs.  Apple Inc

NRG ENERGY

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NRG ENERGY are ranked lower than 15 (%) 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.

Apple Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Apple Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Apple is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with NRG ENERGY and Apple

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

The idea behind NRG ENERGY and Apple Inc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.