Correlation Between NRG Energy and Rocky Mountain

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

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

Diversification Opportunities for NRG Energy and Rocky Mountain

-0.33

Correlation Coefficient

NRG Energy  Rocky Mountain

Very good diversification

The 3 months correlation between NRG and Rocky is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Rocky Mountain Chocolate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Mountain Chocolate 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 Rocky Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Mountain Chocolate has no effect on the direction of NRG Energy i.e., NRG Energy and Rocky Mountain go up and down completely randomly.

Pair Corralation between NRG Energy and Rocky Mountain

Considering the 90-day investment horizon NRG Energy is expected to generate 0.88 times more return on investment than Rocky Mountain. However, NRG Energy is 1.13 times less risky than Rocky Mountain. It trades about 0.04 of its potential returns per unit of risk. Rocky Mountain Chocolate is currently generating about -0.19 per unit of risk. If you would invest  9,103  in NRG Energy on December 17, 2024 and sell it today you would earn a total of  436.00  from holding NRG Energy or generate 4.79% return on investment over 90 days.

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

NRG Energy  vs.  Rocky Mountain Chocolate

NRG Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NRG Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Rocky Mountain Chocolate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rocky Mountain Chocolate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with NRG Energy and Rocky Mountain

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

The idea behind NRG Energy and Rocky Mountain Chocolate 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.