Correlation Between NRG Energy and Kenon Holdings

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

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

Diversification Opportunities for NRG Energy and Kenon Holdings

0.81

Correlation Coefficient

NRG Energy  Kenon Holdings

Very poor diversification

The 3 months correlation between NRG and Kenon is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Kenon Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kenon Holdings 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 Kenon Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kenon Holdings has no effect on the direction of NRG Energy i.e., NRG Energy and Kenon Holdings go up and down completely randomly.

Pair Corralation between NRG Energy and Kenon Holdings

Considering the 90-day investment horizon NRG Energy is expected to generate 1.39 times more return on investment than Kenon Holdings. However, NRG Energy is 1.39 times more volatile than Kenon Holdings. It trades about 0.11 of its potential returns per unit of risk. Kenon Holdings is currently generating about 0.14 per unit of risk. If you would invest  8,463  in NRG Energy on August 30, 2024 and sell it today you would earn a total of  1,426  from holding NRG Energy or generate 16.85% 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.  Kenon Holdings

NRG Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 8 (%) 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.

Kenon Holdings

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kenon Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Kenon Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NRG Energy and Kenon Holdings

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

The idea behind NRG Energy and Kenon Holdings 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.