Correlation Between Nike and NRG Energy

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

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

Diversification Opportunities for Nike and NRG Energy

-0.83

Correlation Coefficient

Nike  NRG Energy

Pay attention - limited upside

The 3 months correlation between Nike and NRG is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy and Nike 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 Nike Inc are associated (or correlated) with NRG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRG Energy has no effect on the direction of Nike i.e., Nike and NRG Energy go up and down completely randomly.

Pair Corralation between Nike and NRG Energy

Considering the 90-day investment horizon Nike Inc is expected to under-perform the NRG Energy. But the stock apears to be less risky and, when comparing its historical volatility, Nike Inc is 1.53 times less risky than NRG Energy. The stock trades about -0.13 of its potential returns per unit of risk. The NRG Energy is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  5,440  in NRG Energy on February 28, 2024 and sell it today you would earn a total of  3,215  from holding NRG Energy or generate 59.1% return on investment over 90 days.

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

Nike Inc  vs.  NRG Energy

Nike Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

NRG Energy

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NRG Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nike and NRG Energy

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

The idea behind Nike Inc and NRG Energy 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.