Correlation Between Poste Italiane and NRG Energy

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

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

Diversification Opportunities for Poste Italiane and NRG Energy

0.78

Correlation Coefficient

Poste Italiane  NRG Energy

Poor diversification

The 3 months correlation between Poste and NRG is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Poste Italiane SpA and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Poste Italiane 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 Poste Italiane SpA 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 Poste Italiane i.e., Poste Italiane and NRG Energy go up and down completely randomly.

Pair Corralation between Poste Italiane and NRG Energy

Assuming the 90 days horizon Poste Italiane is expected to generate 2.13 times less return on investment than NRG Energy. But when comparing it to its historical volatility, Poste Italiane SpA is 2.65 times less risky than NRG Energy. It trades about 0.18 of its potential returns per unit of risk. 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 Together
Strength	Significant
Accuracy	98.48%
Values	Daily Returns

Poste Italiane SpA  vs.  NRG Energy

Poste Italiane SpA

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Poste Italiane SpA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Poste Italiane may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NRG Energy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NRG Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Poste Italiane and NRG Energy

The main advantage of trading using opposite Poste Italiane and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Poste Italiane 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 Poste Italiane SpA 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.