Correlation Between Hawaiian Electric and NRG Energy

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

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

Diversification Opportunities for Hawaiian Electric and NRG Energy

-0.57

Correlation Coefficient

Hawaiian Electric  NRG Energy

Excellent diversification

The 3 months correlation between Hawaiian and NRG is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Hawaiian Electric Industries and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Hawaiian Electric 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 Hawaiian Electric Industries 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 Hawaiian Electric i.e., Hawaiian Electric and NRG Energy go up and down completely randomly.

Pair Corralation between Hawaiian Electric and NRG Energy

Allowing for the 90-day total investment horizon Hawaiian Electric Industries is expected to under-perform the NRG Energy. In addition to that, Hawaiian Electric is 1.32 times more volatile than NRG Energy. It trades about -0.03 of its total potential returns per unit of risk. NRG Energy is currently generating about 0.16 per unit of volatility. If you would invest  7,939  in NRG Energy on August 31, 2024 and sell it today you would earn a total of  1,950  from holding NRG Energy or generate 24.56% return on investment over 90 days.

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

Hawaiian Electric Industries  vs.  NRG Energy

Hawaiian Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hawaiian Electric Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

NRG Energy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 12 (%) 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 Hawaiian Electric and NRG Energy

The main advantage of trading using opposite Hawaiian Electric and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hawaiian Electric 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 Hawaiian Electric Industries 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.