Correlation Between Nextera Energy and NGL Energy

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

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

Diversification Opportunities for Nextera Energy and NGL Energy

0.26

Correlation Coefficient

Nextera Energy  NGL Energy

Modest diversification

The 3 months correlation between Nextera and NGL is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy Partners and NGL Energy Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGL Energy Partners 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 Partners are associated (or correlated) with NGL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGL Energy Partners has no effect on the direction of Nextera Energy i.e., Nextera Energy and NGL Energy go up and down completely randomly.

Pair Corralation between Nextera Energy and NGL Energy

Considering the 90-day investment horizon Nextera Energy Partners is expected to under-perform the NGL Energy. In addition to that, Nextera Energy is 1.1 times more volatile than NGL Energy Partners. It trades about -0.13 of its total potential returns per unit of risk. NGL Energy Partners is currently generating about 0.12 per unit of volatility. If you would invest  398.00  in NGL Energy Partners on September 3, 2024 and sell it today you would earn a total of  84.00  from holding NGL Energy Partners or generate 21.11% return on investment over 90 days.

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

Nextera Energy Partners  vs.  NGL Energy Partners

Nextera Energy Partners

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextera Energy Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's technical and fundamental 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.

NGL Energy Partners

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady technical and fundamental indicators, NGL Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nextera Energy and NGL Energy

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

The idea behind Nextera Energy Partners and NGL Energy Partners 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 Transaction History module to view history of all your transactions and understand their impact on performance.