Correlation Between NextEra and BJs Restaurants

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

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

Diversification Opportunities for NextEra and BJs Restaurants

-0.53

Correlation Coefficient

NextEra  BJs Restaurants

Excellent diversification

The 3 months correlation between NextEra and BJs is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding NextEra Energy Operating and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants and NextEra 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 NextEra Energy Operating are associated (or correlated) with BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of NextEra i.e., NextEra and BJs Restaurants go up and down completely randomly.

Pair Corralation between NextEra and BJs Restaurants

Assuming the 90 days trading horizon NextEra Energy Operating is expected to under-perform the BJs Restaurants. But the bond apears to be less risky and, when comparing its historical volatility, NextEra Energy Operating is 8.44 times less risky than BJs Restaurants. The bond trades about -0.16 of its potential returns per unit of risk. The BJs Restaurants is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,982  in BJs Restaurants on September 3, 2024 and sell it today you would earn a total of  862.00  from holding BJs Restaurants or generate 28.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	93.75%
Values	Daily Returns

NextEra Energy Operating  vs.  BJs Restaurants

NextEra Energy Operating

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NextEra Energy Operating has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NextEra is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

BJs Restaurants

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, BJs Restaurants demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NextEra and BJs Restaurants

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

The idea behind NextEra Energy Operating and BJs Restaurants 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.