Correlation Between PGE Corp and Nextera Energy

Can any of the company-specific risk be diversified away by investing in both PGE Corp 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 Corp 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 Corp and Nextera Energy, you can compare the effects of market volatilities on PGE Corp 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 Corp with a short position of Nextera Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of PGE Corp and Nextera Energy.

Diversification Opportunities for PGE Corp and Nextera Energy

-0.14

Correlation Coefficient

PGE Corp  Nextera Energy

Good diversification

The 3 months correlation between PGE and Nextera is -0.14. 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 Corp 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 Corp 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 Corp i.e., PGE Corp and Nextera Energy go up and down completely randomly.

Pair Corralation between PGE Corp and Nextera Energy

Considering the 90-day investment horizon PGE Corp is expected to generate 0.8 times more return on investment than Nextera Energy. However, PGE Corp is 1.25 times less risky than Nextera Energy. It trades about -0.06 of its potential returns per unit of risk. Nextera Energy is currently generating about -0.23 per unit of risk. If you would invest  2,058  in PGE Corp on September 23, 2024 and sell it today you would lose (76.00) from holding PGE Corp or give up 3.69% of portfolio value over 90 days.

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

PGE Corp  vs.  Nextera Energy

PGE Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Nextera Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextera Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with PGE Corp and Nextera Energy

The main advantage of trading using opposite PGE Corp and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PGE Corp 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 Corp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.