Correlation Between National Rural and Nextera Energy
Can any of the company-specific risk be diversified away by investing in both National Rural and Nextera 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 National Rural and Nextera Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Rural Utilities and Nextera Energy, you can compare the effects of market volatilities on National Rural and Nextera 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 National Rural with a short position of Nextera Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Rural and Nextera Energy.
Diversification Opportunities for National Rural and Nextera Energy
-0.23 | Correlation Coefficient |
Very good diversification
The 3 months correlation between National and Nextera is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding National Rural Utilities and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera Energy and National Rural 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 National Rural Utilities are associated (or correlated) with Nextera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextera Energy has no effect on the direction of National Rural i.e., National Rural and Nextera Energy go up and down completely randomly.
Pair Corralation between National Rural and Nextera Energy
Given the investment horizon of 90 days National Rural Utilities is expected to under-perform the Nextera Energy. But the stock apears to be less risky and, when comparing its historical volatility, National Rural Utilities is 1.79 times less risky than Nextera Energy. The stock trades about -0.01 of its potential returns per unit of risk. The Nextera Energy is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 6,373 in Nextera Energy on February 4, 2024 and sell it today you would earn a total of 512.00 from holding Nextera Energy or generate 8.03% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
National Rural Utilities vs. Nextera Energy
Performance |
Timeline |
National Rural Utilities |
Nextera Energy |
National Rural and Nextera Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with National Rural and Nextera Energy
The main advantage of trading using opposite National Rural and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Rural position performs unexpectedly, Nextera 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 Nextera Energy will offset losses from the drop in Nextera Energy's long position.National Rural vs. DBA Sempra 5750 | National Rural vs. CMS Energy Corp | National Rural vs. American Financial Group | National Rural vs. Maiden Holdings North |
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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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