Correlation Between PGE and NextEra Energy

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

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

Diversification Opportunities for PGE and NextEra Energy

0.7

Correlation Coefficient

PGE  NextEra Energy

Poor diversification

The 3 months correlation between PGE and NextEra is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding PGE Corp. and NextEra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextEra Energy and PGE 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 PGE Corporation 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 PGE i.e., PGE and NextEra Energy go up and down completely randomly.

Pair Corralation between PGE and NextEra Energy

Assuming the 90 days horizon PGE Corporation is expected to generate 1.64 times more return on investment than NextEra Energy. However, PGE is 1.64 times more volatile than NextEra Energy. It trades about 0.09 of its potential returns per unit of risk. NextEra Energy is currently generating about 0.05 per unit of risk. If you would invest  1,479  in PGE Corporation on December 4, 2024 and sell it today you would earn a total of  44.00  from holding PGE Corporation or generate 2.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

PGE Corp.  vs.  NextEra Energy

PGE Corporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days PGE Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 PGE and NextEra Energy

The main advantage of trading using opposite PGE and NextEra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PGE 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 PGE Corporation 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.

Check out your portfolio center.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.