Correlation Between Transportadora and NRG Energy

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

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

Diversification Opportunities for Transportadora and NRG Energy

0.66

Correlation Coefficient

Transportadora  NRG Energy

Poor diversification

The 3 months correlation between Transportadora and NRG is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Transportadora de Gas and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Transportadora 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 Transportadora de Gas 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 Transportadora i.e., Transportadora and NRG Energy go up and down completely randomly.

Pair Corralation between Transportadora and NRG Energy

Considering the 90-day investment horizon Transportadora de Gas is expected to generate 0.99 times more return on investment than NRG Energy. However, Transportadora de Gas is 1.02 times less risky than NRG Energy. It trades about 0.34 of its potential returns per unit of risk. NRG Energy is currently generating about 0.06 per unit of risk. If you would invest  2,096  in Transportadora de Gas on September 13, 2024 and sell it today you would earn a total of  914.00  from holding Transportadora de Gas or generate 43.61% return on investment over 90 days.

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

Transportadora de Gas  vs.  NRG Energy

Transportadora de Gas

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Transportadora de Gas are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Transportadora unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 weak basic indicators, NRG Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transportadora and NRG Energy

The main advantage of trading using opposite Transportadora and NRG Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transportadora 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 Transportadora de Gas 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.

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.