Correlation Between NRG Energy and Suburban Propane

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

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

Diversification Opportunities for NRG Energy and Suburban Propane

0.66

Correlation Coefficient

NRG Energy  Suburban Propane

Poor diversification

The 3 months correlation between NRG and Suburban is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Suburban Propane Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suburban Propane Partners 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 Suburban Propane. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suburban Propane Partners has no effect on the direction of NRG Energy i.e., NRG Energy and Suburban Propane go up and down completely randomly.

Pair Corralation between NRG Energy and Suburban Propane

Considering the 90-day investment horizon NRG Energy is expected to generate 2.07 times less return on investment than Suburban Propane. In addition to that, NRG Energy is 1.9 times more volatile than Suburban Propane Partners. It trades about 0.07 of its total potential returns per unit of risk. Suburban Propane Partners is currently generating about 0.28 per unit of volatility. If you would invest  1,709  in Suburban Propane Partners on September 15, 2024 and sell it today you would earn a total of  159.00  from holding Suburban Propane Partners or generate 9.3% return on investment over 90 days.

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

NRG Energy  vs.  Suburban Propane Partners

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.

Suburban Propane Partners

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Suburban Propane Partners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Suburban Propane may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NRG Energy and Suburban Propane

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

The idea behind NRG Energy and Suburban Propane Partners 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.