Correlation Between NRG Energy and China Resources

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

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

Diversification Opportunities for NRG Energy and China Resources

-0.64

Correlation Coefficient

NRG Energy  China Resources

Excellent diversification

The 3 months correlation between NRG and China is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and China Resources Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Power 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 China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Power has no effect on the direction of NRG Energy i.e., NRG Energy and China Resources go up and down completely randomly.

Pair Corralation between NRG Energy and China Resources

Considering the 90-day investment horizon NRG Energy is expected to generate 1.29 times more return on investment than China Resources. However, NRG Energy is 1.29 times more volatile than China Resources Power. It trades about 0.01 of its potential returns per unit of risk. China Resources Power is currently generating about -0.05 per unit of risk. If you would invest  9,223  in NRG Energy on October 1, 2024 and sell it today you would lose (28.00) from holding NRG Energy or give up 0.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

NRG Energy  vs.  China Resources Power

NRG Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NRG Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, NRG Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Resources Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Resources Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, China Resources is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NRG Energy and China Resources

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

The idea behind NRG Energy and China Resources Power 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 .