Correlation Between Vistra Corp and CENTRICA ADR

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

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

Diversification Opportunities for Vistra Corp and CENTRICA ADR

0.62

Correlation Coefficient

Vistra Corp  CENTRICA ADR

Poor diversification

The 3 months correlation between Vistra and CENTRICA is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Vistra Corp and CENTRICA ADR NEW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CENTRICA ADR NEW and Vistra Corp 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 Corp are associated (or correlated) with CENTRICA ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CENTRICA ADR NEW has no effect on the direction of Vistra Corp i.e., Vistra Corp and CENTRICA ADR go up and down completely randomly.

Pair Corralation between Vistra Corp and CENTRICA ADR

Assuming the 90 days horizon Vistra Corp is expected to generate 2.73 times more return on investment than CENTRICA ADR. However, Vistra Corp is 2.73 times more volatile than CENTRICA ADR NEW. It trades about 0.21 of its potential returns per unit of risk. CENTRICA ADR NEW is currently generating about 0.08 per unit of risk. If you would invest  8,176  in Vistra Corp on September 19, 2024 and sell it today you would earn a total of  5,194  from holding Vistra Corp or generate 63.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Vistra Corp  vs.  CENTRICA ADR NEW

Vistra Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vistra Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vistra Corp reported solid returns over the last few months and may actually be approaching a breakup point.

CENTRICA ADR NEW

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CENTRICA ADR NEW are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CENTRICA ADR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vistra Corp and CENTRICA ADR

The main advantage of trading using opposite Vistra Corp and CENTRICA ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vistra Corp position performs unexpectedly, CENTRICA ADR 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 CENTRICA ADR will offset losses from the drop in CENTRICA ADR's long position.

The idea behind Vistra Corp and CENTRICA ADR NEW 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.