Correlation Between NRG Energy and Huaneng Power

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

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

Diversification Opportunities for NRG Energy and Huaneng Power

-0.12

Correlation Coefficient

NRG Energy  Huaneng Power

Good diversification

The 3 months correlation between NRG and Huaneng is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Huaneng Power International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huaneng Power Intern 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 Huaneng Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huaneng Power Intern has no effect on the direction of NRG Energy i.e., NRG Energy and Huaneng Power go up and down completely randomly.

Pair Corralation between NRG Energy and Huaneng Power

Considering the 90-day investment horizon NRG Energy is expected to generate 1.16 times more return on investment than Huaneng Power. However, NRG Energy is 1.16 times more volatile than Huaneng Power International. It trades about 0.16 of its potential returns per unit of risk. Huaneng Power International is currently generating about -0.02 per unit of risk. If you would invest  7,939  in NRG Energy on August 31, 2024 and sell it today you would earn a total of  1,950  from holding NRG Energy or generate 24.56% return on investment over 90 days.

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

NRG Energy  vs.  Huaneng Power International

NRG Energy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 12 (%) 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.

Huaneng Power Intern

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with NRG Energy and Huaneng Power

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

The idea behind NRG Energy and Huaneng Power International 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.