Correlation Between Vistra Energy and Centrica Plc

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

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

Diversification Opportunities for Vistra Energy and Centrica Plc

0.15

Correlation Coefficient

Vistra Energy  Centrica Plc

Average diversification

The 3 months correlation between Vistra and Centrica is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Vistra Energy Corp and Centrica plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrica plc and Vistra 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 Vistra Energy Corp are associated (or correlated) with Centrica Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrica plc has no effect on the direction of Vistra Energy i.e., Vistra Energy and Centrica Plc go up and down completely randomly.

Pair Corralation between Vistra Energy and Centrica Plc

Considering the 90-day investment horizon Vistra Energy Corp is expected to under-perform the Centrica Plc. In addition to that, Vistra Energy is 1.5 times more volatile than Centrica plc. It trades about -0.14 of its total potential returns per unit of risk. Centrica plc is currently generating about -0.13 per unit of volatility. If you would invest  154.00  in Centrica plc on October 1, 2024 and sell it today you would lose (8.00) from holding Centrica plc or give up 5.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Vistra Energy Corp  vs.  Centrica plc

Vistra Energy Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vistra Energy Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Vistra Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Centrica plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centrica plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Centrica Plc is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vistra Energy and Centrica Plc

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

The idea behind Vistra Energy Corp and Centrica plc 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.