Correlation Between Northland Power and NRG Energy
Can any of the company-specific risk be diversified away by investing in both Northland Power 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 Northland Power and NRG Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northland Power and NRG Energy, you can compare the effects of market volatilities on Northland Power 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 Northland Power with a short position of NRG Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northland Power and NRG Energy.
Diversification Opportunities for Northland Power and NRG Energy
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Northland and NRG is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Northland Power and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Northland Power 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 Northland Power 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 Northland Power i.e., Northland Power and NRG Energy go up and down completely randomly.
Pair Corralation between Northland Power and NRG Energy
Assuming the 90 days horizon Northland Power is expected to under-perform the NRG Energy. But the stock apears to be less risky and, when comparing its historical volatility, Northland Power is 1.01 times less risky than NRG Energy. The stock trades about -0.07 of its potential returns per unit of risk. The NRG Energy is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 7,194 in NRG Energy on September 15, 2024 and sell it today you would earn a total of 1,802 from holding NRG Energy or generate 25.05% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 98.48% |
Values | Daily Returns |
Northland Power vs. NRG Energy
Performance |
Timeline |
Northland Power |
NRG Energy |
Northland Power and NRG Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Northland Power and NRG Energy
The main advantage of trading using opposite Northland Power and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northland Power 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.Northland Power vs. Caltagirone SpA | Northland Power vs. Materialise NV | Northland Power vs. Perma Fix Environmental Services | Northland Power vs. NEWELL RUBBERMAID |
NRG Energy vs. ANTA SPORTS PRODUCT | NRG Energy vs. Altair Engineering | NRG Energy vs. Fair Isaac Corp | NRG Energy vs. ePlay Digital |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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