Correlation Between Nuvalent and NRG Energy

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

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

Diversification Opportunities for Nuvalent and NRG Energy

-0.11

Correlation Coefficient

Nuvalent  NRG Energy

Good diversification

The 3 months correlation between Nuvalent and NRG is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Nuvalent and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Nuvalent 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 Nuvalent are associated (or correlated) with NRG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRG Energy has no effect on the direction of Nuvalent i.e., Nuvalent and NRG Energy go up and down completely randomly.

Pair Corralation between Nuvalent and NRG Energy

Given the investment horizon of 90 days Nuvalent is expected to under-perform the NRG Energy. In addition to that, Nuvalent is 1.29 times more volatile than NRG Energy. It trades about -0.36 of its total potential returns per unit of risk. NRG Energy is currently generating about -0.23 per unit of volatility. If you would invest  9,940  in NRG Energy on October 1, 2024 and sell it today you would lose (745.00) from holding NRG Energy or give up 7.49% of portfolio value over 90 days.

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

Nuvalent  vs.  NRG Energy

Nuvalent

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuvalent 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 basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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.

Pair Trading with Nuvalent and NRG Energy

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

The idea behind Nuvalent and NRG Energy 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.