Correlation Between NRG Energy and Antero Midstream

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

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

Diversification Opportunities for NRG Energy and Antero Midstream

0.7

Correlation Coefficient

NRG Energy  Antero Midstream

Poor diversification

The 3 months correlation between NRG and Antero is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Antero Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Antero Midstream Partners 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 Antero Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Antero Midstream Partners has no effect on the direction of NRG Energy i.e., NRG Energy and Antero Midstream go up and down completely randomly.

Pair Corralation between NRG Energy and Antero Midstream

Considering the 90-day investment horizon NRG Energy is expected to generate 1.7 times more return on investment than Antero Midstream. However, NRG Energy is 1.7 times more volatile than Antero Midstream Partners. It trades about 0.05 of its potential returns per unit of risk. Antero Midstream Partners is currently generating about 0.03 per unit of risk. If you would invest  8,145  in NRG Energy on September 23, 2024 and sell it today you would earn a total of  900.00  from holding NRG Energy or generate 11.05% 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.  Antero Midstream Partners

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Antero Midstream Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Antero Midstream Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Antero Midstream is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with NRG Energy and Antero Midstream

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

The idea behind NRG Energy and Antero Midstream Partners 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 Transaction History module to view history of all your transactions and understand their impact on performance.