Correlation Between Vistra Energy and NRG Energy

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

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

Diversification Opportunities for Vistra Energy and NRG Energy

0.93

Correlation Coefficient

Vistra Energy  NRG Energy

Almost no diversification

The 3 months correlation between Vistra and NRG is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vistra Energy Corp and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Vistra Energy 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 Vistra Energy 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 Vistra Energy i.e., Vistra Energy and NRG Energy go up and down completely randomly.

Pair Corralation between Vistra Energy and NRG Energy

Considering the 90-day investment horizon Vistra Energy Corp is expected to generate 1.58 times more return on investment than NRG Energy. However, Vistra Energy is 1.58 times more volatile than NRG Energy. It trades about 0.15 of its potential returns per unit of risk. NRG Energy is currently generating about 0.09 per unit of risk. If you would invest  6,939  in Vistra Energy Corp on September 9, 2024 and sell it today you would earn a total of  9,059  from holding Vistra Energy Corp or generate 130.55% return on investment over 90 days.

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

Vistra Energy Corp  vs.  NRG Energy

Vistra Energy Corp

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vistra Energy Corp are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Vistra Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

NRG Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NRG Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vistra Energy and NRG Energy

The main advantage of trading using opposite Vistra Energy and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vistra Energy 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 Vistra Energy 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.