Correlation Between Nextera Energy and Xcel Energy

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

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

Diversification Opportunities for Nextera Energy and Xcel Energy

-0.63

Correlation Coefficient

Nextera Energy  Xcel Energy

Excellent diversification

The 3 months correlation between Nextera and Xcel is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy and Xcel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel Energy and Nextera 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 Nextera Energy are associated (or correlated) with Xcel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Energy has no effect on the direction of Nextera Energy i.e., Nextera Energy and Xcel Energy go up and down completely randomly.

Pair Corralation between Nextera Energy and Xcel Energy

Considering the 90-day investment horizon Nextera Energy is expected to under-perform the Xcel Energy. In addition to that, Nextera Energy is 1.25 times more volatile than Xcel Energy. It trades about -0.23 of its total potential returns per unit of risk. Xcel Energy is currently generating about -0.28 per unit of volatility. If you would invest  7,135  in Xcel Energy on September 23, 2024 and sell it today you would lose (395.00) from holding Xcel Energy or give up 5.54% of portfolio value over 90 days.

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

Nextera Energy  vs.  Xcel Energy

Nextera Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextera Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Xcel Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xcel Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Xcel Energy is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Nextera Energy and Xcel Energy

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

The idea behind Nextera Energy and Xcel 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.