Correlation Between NRG Energy and Allegiant Travel

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

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

Diversification Opportunities for NRG Energy and Allegiant Travel

0.8

Correlation Coefficient

NRG Energy  Allegiant Travel

Very poor diversification

The 3 months correlation between NRG and Allegiant is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Allegiant Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegiant Travel and NRG 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 NRG Energy are associated (or correlated) with Allegiant Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegiant Travel has no effect on the direction of NRG Energy i.e., NRG Energy and Allegiant Travel go up and down completely randomly.

Pair Corralation between NRG Energy and Allegiant Travel

Considering the 90-day investment horizon NRG Energy is expected to generate 4.12 times less return on investment than Allegiant Travel. But when comparing it to its historical volatility, NRG Energy is 1.36 times less risky than Allegiant Travel. It trades about 0.12 of its potential returns per unit of risk. Allegiant Travel is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  4,107  in Allegiant Travel on September 16, 2024 and sell it today you would earn a total of  4,383  from holding Allegiant Travel or generate 106.72% return on investment over 90 days.

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

NRG Energy  vs.  Allegiant Travel

NRG Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 9 (%) 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.

Allegiant Travel

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Allegiant Travel are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, Allegiant Travel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NRG Energy and Allegiant Travel

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

The idea behind NRG Energy and Allegiant Travel 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .