Correlation Between NRG ENERGY and Ebro Foods

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

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

Diversification Opportunities for NRG ENERGY and Ebro Foods

0.3

Correlation Coefficient

NRG ENERGY  Ebro Foods

Weak diversification

The 3 months correlation between NRG and Ebro is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding NRG ENERGY and Ebro Foods SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ebro Foods SA 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 Ebro Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ebro Foods SA has no effect on the direction of NRG ENERGY i.e., NRG ENERGY and Ebro Foods go up and down completely randomly.

Pair Corralation between NRG ENERGY and Ebro Foods

Assuming the 90 days trading horizon NRG ENERGY is expected to generate 3.85 times more return on investment than Ebro Foods. However, NRG ENERGY is 3.85 times more volatile than Ebro Foods SA. It trades about 0.03 of its potential returns per unit of risk. Ebro Foods SA is currently generating about 0.08 per unit of risk. If you would invest  8,482  in NRG ENERGY on December 19, 2024 and sell it today you would earn a total of  156.00  from holding NRG ENERGY or generate 1.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

NRG ENERGY  vs.  Ebro Foods SA

NRG ENERGY

Risk-Adjusted Performance

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. In spite of comparatively uncertain basic indicators, NRG ENERGY may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Ebro Foods SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ebro Foods SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Ebro Foods is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NRG ENERGY and Ebro Foods

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

The idea behind NRG ENERGY and Ebro Foods SA 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.