Correlation Between NRG Energy and Freedom Bank

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

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

Diversification Opportunities for NRG Energy and Freedom Bank

0.22

Correlation Coefficient

NRG Energy  Freedom Bank

Modest diversification

The 3 months correlation between NRG and Freedom is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Freedom Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom Bank 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 Freedom Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Bank has no effect on the direction of NRG Energy i.e., NRG Energy and Freedom Bank go up and down completely randomly.

Pair Corralation between NRG Energy and Freedom Bank

Considering the 90-day investment horizon NRG Energy is expected to generate 1.62 times more return on investment than Freedom Bank. However, NRG Energy is 1.62 times more volatile than Freedom Bank of. It trades about 0.12 of its potential returns per unit of risk. Freedom Bank of is currently generating about -0.06 per unit of risk. If you would invest  2,988  in NRG Energy on October 4, 2024 and sell it today you would earn a total of  6,034  from holding NRG Energy or generate 201.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.85%
Values	Daily Returns

NRG Energy  vs.  Freedom Bank of

NRG Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NRG Energy has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Freedom Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freedom Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Freedom Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NRG Energy and Freedom Bank

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

The idea behind NRG Energy and Freedom Bank of 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.