Correlation Between Eversource Energy and NextEra Energy

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

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

Diversification Opportunities for Eversource Energy and NextEra Energy

0.24

Correlation Coefficient

Eversource Energy  NextEra Energy

Modest diversification

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

Pair Corralation between Eversource Energy and NextEra Energy

Assuming the 90 days horizon Eversource Energy is expected to generate 1.62 times more return on investment than NextEra Energy. However, Eversource Energy is 1.62 times more volatile than NextEra Energy. It trades about 0.24 of its potential returns per unit of risk. NextEra Energy is currently generating about 0.05 per unit of risk. If you would invest  5,550  in Eversource Energy on December 4, 2024 and sell it today you would earn a total of  500.00  from holding Eversource Energy or generate 9.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Eversource Energy  vs.  NextEra Energy

Eversource Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eversource Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eversource Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

NextEra Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days NextEra Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NextEra Energy is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eversource Energy and NextEra Energy

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

The idea behind Eversource Energy and NextEra 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.