Correlation Between Where Food and NRG Energy

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

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

Diversification Opportunities for Where Food and NRG Energy

0.66

Correlation Coefficient

Where Food  NRG Energy

Poor diversification

The 3 months correlation between Where and NRG is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Where Food Comes and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Where Food 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 Where Food Comes 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 Where Food i.e., Where Food and NRG Energy go up and down completely randomly.

Pair Corralation between Where Food and NRG Energy

Given the investment horizon of 90 days Where Food is expected to generate 1.39 times less return on investment than NRG Energy. But when comparing it to its historical volatility, Where Food Comes is 1.28 times less risky than NRG Energy. It trades about 0.11 of its potential returns per unit of risk. NRG Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  8,042  in NRG Energy on September 15, 2024 and sell it today you would earn a total of  1,456  from holding NRG Energy or generate 18.1% return on investment over 90 days.

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

Where Food Comes  vs.  NRG Energy

Where Food Comes

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Where Food Comes are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Where Food reported solid returns over the last few months and may actually be approaching a breakup point.

NRG Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, NRG Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Where Food and NRG Energy

The main advantage of trading using opposite Where Food and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Where Food 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 Where Food Comes 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.