Correlation Between NRG Energy and Albertsons Companies

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

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

Diversification Opportunities for NRG Energy and Albertsons Companies

0.64

Correlation Coefficient

NRG Energy  Albertsons Companies

Poor diversification

The 3 months correlation between NRG and Albertsons is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Albertsons Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Albertsons Companies 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 Albertsons Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Albertsons Companies has no effect on the direction of NRG Energy i.e., NRG Energy and Albertsons Companies go up and down completely randomly.

Pair Corralation between NRG Energy and Albertsons Companies

Considering the 90-day investment horizon NRG Energy is expected to generate 2.09 times more return on investment than Albertsons Companies. However, NRG Energy is 2.09 times more volatile than Albertsons Companies. It trades about 0.12 of its potential returns per unit of risk. Albertsons Companies is currently generating about -0.02 per unit of risk. If you would invest  7,944  in NRG Energy on September 12, 2024 and sell it today you would earn a total of  1,429  from holding NRG Energy or generate 17.99% return on investment over 90 days.

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

NRG Energy  vs.  Albertsons Companies

NRG Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NRG Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Albertsons Companies

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Albertsons Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Albertsons Companies is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with NRG Energy and Albertsons Companies

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

The idea behind NRG Energy and Albertsons Companies 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.