Correlation Between Vail Resorts and NRG Energy

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

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

Diversification Opportunities for Vail Resorts and NRG Energy

0.71

Correlation Coefficient

Vail Resorts  NRG Energy

Poor diversification

The 3 months correlation between Vail and NRG is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Vail Resorts and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Vail Resorts 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 Vail Resorts 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 Vail Resorts i.e., Vail Resorts and NRG Energy go up and down completely randomly.

Pair Corralation between Vail Resorts and NRG Energy

Assuming the 90 days horizon Vail Resorts is expected to generate 1.6 times more return on investment than NRG Energy. However, Vail Resorts is 1.6 times more volatile than NRG Energy. It trades about 0.3 of its potential returns per unit of risk. NRG Energy is currently generating about -0.27 per unit of risk. If you would invest  16,495  in Vail Resorts on October 4, 2024 and sell it today you would earn a total of  2,105  from holding Vail Resorts or generate 12.76% return on investment over 90 days.

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

Vail Resorts  vs.  NRG Energy

Vail Resorts

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vail Resorts are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Vail Resorts reported solid returns over the last few months and may actually be approaching a breakup point.

NRG Energy

Risk-Adjusted Performance

2 of 100

Insignificant

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 stable basic indicators, NRG Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vail Resorts and NRG Energy

The main advantage of trading using opposite Vail Resorts and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vail Resorts 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 Vail Resorts 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.