Correlation Between TransAlta Corp and NRG Energy

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

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

Diversification Opportunities for TransAlta Corp and NRG Energy

-0.02

Correlation Coefficient

TransAlta Corp  NRG Energy

Good diversification

The 3 months correlation between TransAlta and NRG is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding TransAlta Corp and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and TransAlta 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 TransAlta Corp 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 TransAlta Corp i.e., TransAlta Corp and NRG Energy go up and down completely randomly.

Pair Corralation between TransAlta Corp and NRG Energy

Considering the 90-day investment horizon TransAlta Corp is expected to under-perform the NRG Energy. But the stock apears to be less risky and, when comparing its historical volatility, TransAlta Corp is 1.01 times less risky than NRG Energy. The stock trades about -0.17 of its potential returns per unit of risk. The NRG Energy is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  9,175  in NRG Energy on December 28, 2024 and sell it today you would earn a total of  401.00  from holding NRG Energy or generate 4.37% return on investment over 90 days.

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

TransAlta Corp  vs.  NRG Energy

TransAlta Corp

Risk-Adjusted Performance

Very Weak

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

NRG Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NRG Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with TransAlta Corp and NRG Energy

The main advantage of trading using opposite TransAlta Corp and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TransAlta Corp 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 TransAlta Corp 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.