Correlation Between Radcom and Nextera Energy

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

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

Diversification Opportunities for Radcom and Nextera Energy

-0.57

Correlation Coefficient

Radcom  Nextera Energy

Excellent diversification

The 3 months correlation between Radcom and Nextera is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Radcom and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy and Radcom 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 Radcom 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 Radcom i.e., Radcom and Nextera Energy go up and down completely randomly.

Pair Corralation between Radcom and Nextera Energy

Given the investment horizon of 90 days Radcom is expected to generate 2.13 times more return on investment than Nextera Energy. However, Radcom is 2.13 times more volatile than Nextera Energy. It trades about 0.03 of its potential returns per unit of risk. Nextera Energy is currently generating about 0.01 per unit of risk. If you would invest  1,189  in Radcom on December 20, 2024 and sell it today you would earn a total of  45.00  from holding Radcom or generate 3.78% return on investment over 90 days.

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

Radcom  vs.  Nextera Energy

Radcom

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Radcom are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Radcom 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. In spite of rather sound technical and fundamental indicators, Nextera Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Radcom and Nextera Energy

The main advantage of trading using opposite Radcom and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Radcom 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 Radcom 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.