Correlation Between Contact Energy and Vistra Corp

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

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

Diversification Opportunities for Contact Energy and Vistra Corp

0.65

Correlation Coefficient

Contact Energy  Vistra Corp

Poor diversification

The 3 months correlation between Contact and Vistra is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Contact Energy Limited and Vistra Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vistra Corp and Contact Energy 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 Contact Energy Limited are associated (or correlated) with Vistra Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vistra Corp has no effect on the direction of Contact Energy i.e., Contact Energy and Vistra Corp go up and down completely randomly.

Pair Corralation between Contact Energy and Vistra Corp

Assuming the 90 days horizon Contact Energy Limited is expected to generate 0.31 times more return on investment than Vistra Corp. However, Contact Energy Limited is 3.19 times less risky than Vistra Corp. It trades about -0.02 of its potential returns per unit of risk. Vistra Corp is currently generating about -0.09 per unit of risk. If you would invest  456.00  in Contact Energy Limited on September 20, 2024 and sell it today you would lose (4.00) from holding Contact Energy Limited or give up 0.88% of portfolio value over 90 days.

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

Contact Energy Limited  vs.  Vistra Corp

Contact Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Contact Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Contact Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Vistra Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vistra Corp are ranked lower than 12 (%) 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.

Pair Trading with Contact Energy and Vistra Corp

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

The idea behind Contact Energy Limited and Vistra Corp 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.