Correlation Between Ultra Clean and Nextera Energy

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

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

Diversification Opportunities for Ultra Clean and Nextera Energy

0.2

Correlation Coefficient

Ultra Clean  Nextera Energy

Modest diversification

The 3 months correlation between Ultra and Nextera is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Clean Holdings and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy and Ultra Clean 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 Ultra Clean Holdings 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 Ultra Clean i.e., Ultra Clean and Nextera Energy go up and down completely randomly.

Pair Corralation between Ultra Clean and Nextera Energy

Given the investment horizon of 90 days Ultra Clean Holdings is expected to generate 1.8 times more return on investment than Nextera Energy. However, Ultra Clean is 1.8 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 -0.21 per unit of risk. If you would invest  3,808  in Ultra Clean Holdings on October 7, 2024 and sell it today you would lose (51.00) from holding Ultra Clean Holdings or give up 1.34% of portfolio value over 90 days.

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

Ultra Clean Holdings  vs.  Nextera Energy

Ultra Clean Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultra Clean Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Ultra Clean is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Ultra Clean and Nextera Energy

The main advantage of trading using opposite Ultra Clean and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Clean 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 Ultra Clean Holdings 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.