Correlation Between NRG Energy and Black Hills

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

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

Diversification Opportunities for NRG Energy and Black Hills

0.56

Correlation Coefficient

NRG Energy  Black Hills

Very weak diversification

The 3 months correlation between NRG and Black is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Black Hills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Hills 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 Black Hills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Hills has no effect on the direction of NRG Energy i.e., NRG Energy and Black Hills go up and down completely randomly.

Pair Corralation between NRG Energy and Black Hills

Considering the 90-day investment horizon NRG Energy is expected to generate 3.18 times more return on investment than Black Hills. However, NRG Energy is 3.18 times more volatile than Black Hills. It trades about 0.06 of its potential returns per unit of risk. Black Hills is currently generating about -0.09 per unit of risk. If you would invest  9,219  in NRG Energy on September 16, 2024 and sell it today you would earn a total of  279.00  from holding NRG Energy or generate 3.03% return on investment over 90 days.

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

NRG Energy  vs.  Black Hills

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.

Black Hills

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Black Hills are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward-looking signals, Black Hills is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with NRG Energy and Black Hills

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

The idea behind NRG Energy and Black Hills 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.