Correlation Between NRG Energy and Brookfield Renewable

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

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

Diversification Opportunities for NRG Energy and Brookfield Renewable

-0.54

Correlation Coefficient

NRG Energy  Brookfield Renewable

Excellent diversification

The 3 months correlation between NRG and Brookfield is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Brookfield Renewable Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Renewable and NRG 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 NRG Energy are associated (or correlated) with Brookfield Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Renewable has no effect on the direction of NRG Energy i.e., NRG Energy and Brookfield Renewable go up and down completely randomly.

Pair Corralation between NRG Energy and Brookfield Renewable

Considering the 90-day investment horizon NRG Energy is expected to generate 1.08 times more return on investment than Brookfield Renewable. However, NRG Energy is 1.08 times more volatile than Brookfield Renewable Partners. It trades about 0.13 of its potential returns per unit of risk. Brookfield Renewable Partners is currently generating about -0.19 per unit of risk. If you would invest  7,015  in NRG Energy on January 31, 2024 and sell it today you would earn a total of  380.00  from holding NRG Energy or generate 5.42% return on investment over 90 days.

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

NRG Energy  vs.  Brookfield Renewable Partners

NRG Energy

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, NRG Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Brookfield Renewable

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brookfield Renewable Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with NRG Energy and Brookfield Renewable

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

The idea behind NRG Energy and Brookfield Renewable Partners 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 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.