Correlation Between Visa and NRG Energy

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

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

Diversification Opportunities for Visa and NRG Energy

0.76

Correlation Coefficient

Visa  NRG Energy

Poor diversification

The 3 months correlation between Visa and NRG is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Visa 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 Visa Class A 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 Visa i.e., Visa and NRG Energy go up and down completely randomly.

Pair Corralation between Visa and NRG Energy

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.67 times more return on investment than NRG Energy. However, Visa Class A is 1.49 times less risky than NRG Energy. It trades about 0.04 of its potential returns per unit of risk. NRG Energy is currently generating about -0.32 per unit of risk. If you would invest  31,665  in Visa Class A on October 1, 2024 and sell it today you would earn a total of  201.00  from holding Visa Class A or generate 0.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.0%
Values	Daily Returns

Visa Class A  vs.  NRG Energy

Visa Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

NRG Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NRG Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Visa and NRG Energy

The main advantage of trading using opposite Visa and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.