Correlation Between NRG Energy and Waterside Capital

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

By analyzing existing cross correlation between NRG Energy and Waterside Capital, you can compare the effects of market volatilities on NRG Energy and Waterside Capital 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 Waterside Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of NRG Energy and Waterside Capital.

Diversification Opportunities for NRG Energy and Waterside Capital

0.0

Correlation Coefficient

NRG Energy  Waterside Capital

Pay attention - limited upside

The 3 months correlation between NRG and Waterside is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Waterside Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterside Capital 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 Waterside Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterside Capital has no effect on the direction of NRG Energy i.e., NRG Energy and Waterside Capital go up and down completely randomly.

Pair Corralation between NRG Energy and Waterside Capital

If you would invest  4,259  in NRG Energy on February 7, 2024 and sell it today you would earn a total of  3,530  from holding NRG Energy or generate 82.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

NRG Energy  vs.  Waterside Capital

NRG Energy

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 29 (%) 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.

Waterside Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Waterside Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Waterside Capital is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with NRG Energy and Waterside Capital

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

The idea behind NRG Energy and Waterside Capital 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.