Correlation Between Clean Carbon and NGG

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

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

Diversification Opportunities for Clean Carbon and NGG

0.82

Correlation Coefficient

Clean Carbon  NGG

Very poor diversification

The 3 months correlation between Clean and NGG is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Clean Carbon Energy and NGG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGG and Clean Carbon 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 Clean Carbon Energy are associated (or correlated) with NGG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGG has no effect on the direction of Clean Carbon i.e., Clean Carbon and NGG go up and down completely randomly.

Pair Corralation between Clean Carbon and NGG

Assuming the 90 days trading horizon Clean Carbon Energy is expected to generate 1.38 times more return on investment than NGG. However, Clean Carbon is 1.38 times more volatile than NGG. It trades about -0.05 of its potential returns per unit of risk. NGG is currently generating about -0.12 per unit of risk. If you would invest  33.00  in Clean Carbon Energy on September 14, 2024 and sell it today you would lose (8.00) from holding Clean Carbon Energy or give up 24.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Clean Carbon Energy  vs.  NGG

Clean Carbon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clean Carbon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

NGG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NGG has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Clean Carbon and NGG

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

The idea behind Clean Carbon Energy and NGG 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.