Correlation Between Transocean and NRG Energy

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

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

Diversification Opportunities for Transocean and NRG Energy

-0.11

Correlation Coefficient

Transocean  NRG Energy

Good diversification

The 3 months correlation between Transocean and NRG is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Transocean and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Transocean 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 Transocean are associated (or correlated) with NRG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRG Energy has no effect on the direction of Transocean i.e., Transocean and NRG Energy go up and down completely randomly.

Pair Corralation between Transocean and NRG Energy

Considering the 90-day investment horizon Transocean is expected to under-perform the NRG Energy. In addition to that, Transocean is 1.19 times more volatile than NRG Energy. It trades about -0.1 of its total potential returns per unit of risk. NRG Energy is currently generating about 0.11 per unit of volatility. If you would invest  8,095  in NRG Energy on September 17, 2024 and sell it today you would earn a total of  1,420  from holding NRG Energy or generate 17.54% return on investment over 90 days.

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

Transocean  vs.  NRG Energy

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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.

Pair Trading with Transocean and NRG Energy

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

The idea behind Transocean and NRG Energy 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.