Correlation Between NRG Energy and GENERAL

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

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

Diversification Opportunities for NRG Energy and GENERAL

0.24

Correlation Coefficient

NRG Energy  GENERAL

Modest diversification

The 3 months correlation between NRG and GENERAL is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of NRG Energy i.e., NRG Energy and GENERAL go up and down completely randomly.

Pair Corralation between NRG Energy and GENERAL

Considering the 90-day investment horizon NRG Energy is expected to generate 8.56 times more return on investment than GENERAL. However, NRG Energy is 8.56 times more volatile than GENERAL ELEC CAP. It trades about 0.06 of its potential returns per unit of risk. GENERAL ELEC CAP is currently generating about 0.37 per unit of risk. If you would invest  9,184  in NRG Energy on December 21, 2024 and sell it today you would earn a total of  780.00  from holding NRG Energy or generate 8.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	13.33%
Values	Daily Returns

NRG Energy  vs.  GENERAL ELEC CAP

NRG Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 4 (%) 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.

GENERAL ELEC CAP

Risk-Adjusted Performance

Strong

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, GENERAL may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with NRG Energy and GENERAL

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

The idea behind NRG Energy and GENERAL ELEC CAP 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.