Correlation Between US Global and NRG Energy

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

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

Diversification Opportunities for US Global and NRG Energy

-0.21

Correlation Coefficient

US Global  NRG Energy

Very good diversification

The 3 months correlation between GROW and NRG is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding US Global Investors and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and US Global 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 US Global Investors 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 US Global i.e., US Global and NRG Energy go up and down completely randomly.

Pair Corralation between US Global and NRG Energy

Given the investment horizon of 90 days US Global Investors is expected to under-perform the NRG Energy. But the stock apears to be less risky and, when comparing its historical volatility, US Global Investors is 2.1 times less risky than NRG Energy. The stock trades about -0.06 of its potential returns per unit of risk. The NRG Energy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,760  in NRG Energy on September 22, 2024 and sell it today you would earn a total of  285.00  from holding NRG Energy or generate 3.25% return on investment over 90 days.

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

US Global Investors  vs.  NRG Energy

US Global Investors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Global Investors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, US Global is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

NRG Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, NRG Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with US Global and NRG Energy

The main advantage of trading using opposite US Global and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Global 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 US Global Investors 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.