Correlation Between Wabash National and NRG Energy

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

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

Diversification Opportunities for Wabash National and NRG Energy

0.53

Correlation Coefficient

Wabash National  NRG Energy

Very weak diversification

The 3 months correlation between Wabash and NRG is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Wabash National and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Wabash National 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 Wabash National 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 Wabash National i.e., Wabash National and NRG Energy go up and down completely randomly.

Pair Corralation between Wabash National and NRG Energy

Considering the 90-day investment horizon Wabash National is expected to under-perform the NRG Energy. But the stock apears to be less risky and, when comparing its historical volatility, Wabash National is 1.39 times less risky than NRG Energy. The stock trades about -0.38 of its potential returns per unit of risk. The NRG Energy is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  9,187  in NRG Energy on September 24, 2024 and sell it today you would lose (142.00) from holding NRG Energy or give up 1.55% of portfolio value over 90 days.

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

Wabash National  vs.  NRG Energy

Wabash National

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wabash National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

NRG Energy

Risk-Adjusted Performance

2 of 100

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

Pair Trading with Wabash National and NRG Energy

The main advantage of trading using opposite Wabash National and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wabash National 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 Wabash National 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.