Correlation Between NRG Energy and Rolls

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

By analyzing existing cross correlation between NRG Energy and Rolls Royce Holdings 3625, you can compare the effects of market volatilities on NRG Energy and Rolls 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 Rolls. Check out your portfolio center. Please also check ongoing floating volatility patterns of NRG Energy and Rolls.

Diversification Opportunities for NRG Energy and Rolls

-0.04

Correlation Coefficient

NRG Energy  Rolls

Good diversification

The 3 months correlation between NRG and Rolls is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Rolls Royce Holdings 3625 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings 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 Rolls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of NRG Energy i.e., NRG Energy and Rolls go up and down completely randomly.

Pair Corralation between NRG Energy and Rolls

Considering the 90-day investment horizon NRG Energy is expected to generate 4.73 times more return on investment than Rolls. However, NRG Energy is 4.73 times more volatile than Rolls Royce Holdings 3625. It trades about 0.03 of its potential returns per unit of risk. Rolls Royce Holdings 3625 is currently generating about -0.15 per unit of risk. If you would invest  9,175  in NRG Energy on December 30, 2024 and sell it today you would earn a total of  345.00  from holding NRG Energy or generate 3.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	48.39%
Values	Daily Returns

NRG Energy  vs.  Rolls Royce Holdings 3625

NRG Energy

Risk-Adjusted Performance

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 unsteady basic indicators, NRG Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Rolls Royce Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rolls Royce Holdings 3625 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Rolls Royce Holdings 3625 investors.

Pair Trading with NRG Energy and Rolls

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

The idea behind NRG Energy and Rolls Royce Holdings 3625 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.