Correlation Between Walmart and NRG ENERGY

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

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

Diversification Opportunities for Walmart and NRG ENERGY

0.69

Correlation Coefficient

Walmart  NRG ENERGY

Poor diversification

The 3 months correlation between Walmart and NRG is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and NRG ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG ENERGY and Walmart 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 Walmart 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 Walmart i.e., Walmart and NRG ENERGY go up and down completely randomly.

Pair Corralation between Walmart and NRG ENERGY

Assuming the 90 days horizon Walmart is expected to under-perform the NRG ENERGY. But the stock apears to be less risky and, when comparing its historical volatility, Walmart is 2.25 times less risky than NRG ENERGY. The stock trades about -0.09 of its potential returns per unit of risk. The NRG ENERGY is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,729  in NRG ENERGY on December 21, 2024 and sell it today you would earn a total of  269.00  from holding NRG ENERGY or generate 3.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Walmart  vs.  NRG ENERGY

Walmart

Risk-Adjusted Performance

Very Weak

Over the last 90 days Walmart has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

NRG ENERGY

Risk-Adjusted Performance

Weak

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. In spite of comparatively uncertain basic indicators, NRG ENERGY may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Walmart and NRG ENERGY

The main advantage of trading using opposite Walmart and NRG ENERGY positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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 Walmart 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.