Correlation Between NRG Energy and PROVIDENCE

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

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

Diversification Opportunities for NRG Energy and PROVIDENCE

0.54

Correlation Coefficient

NRG Energy  PROVIDENCE

Very weak diversification

The 3 months correlation between NRG and PROVIDENCE is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and PROVIDENCE HEALTH SVCS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PROVIDENCE HEALTH SVCS 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 PROVIDENCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PROVIDENCE HEALTH SVCS has no effect on the direction of NRG Energy i.e., NRG Energy and PROVIDENCE go up and down completely randomly.

Pair Corralation between NRG Energy and PROVIDENCE

Considering the 90-day investment horizon NRG Energy is expected to generate 2.49 times more return on investment than PROVIDENCE. However, NRG Energy is 2.49 times more volatile than PROVIDENCE HEALTH SVCS. It trades about -0.04 of its potential returns per unit of risk. PROVIDENCE HEALTH SVCS is currently generating about -0.32 per unit of risk. If you would invest  9,507  in NRG Energy on December 11, 2024 and sell it today you would lose (1,025) from holding NRG Energy or give up 10.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	13.56%
Values	Daily Returns

NRG Energy  vs.  PROVIDENCE HEALTH SVCS

NRG Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days NRG Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

PROVIDENCE HEALTH SVCS

Risk-Adjusted Performance

Very Weak

Over the last 90 days PROVIDENCE HEALTH SVCS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for PROVIDENCE HEALTH SVCS investors.

Pair Trading with NRG Energy and PROVIDENCE

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

The idea behind NRG Energy and PROVIDENCE HEALTH SVCS 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.