Correlation Between NRG Energy and Pampa Energia

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

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

Diversification Opportunities for NRG Energy and Pampa Energia

-0.22

Correlation Coefficient

NRG Energy  Pampa Energia

Very good diversification

The 3 months correlation between NRG and Pampa is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and Pampa Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pampa Energia SA 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 Pampa Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pampa Energia SA has no effect on the direction of NRG Energy i.e., NRG Energy and Pampa Energia go up and down completely randomly.

Pair Corralation between NRG Energy and Pampa Energia

Considering the 90-day investment horizon NRG Energy is expected to generate 0.73 times more return on investment than Pampa Energia. However, NRG Energy is 1.38 times less risky than Pampa Energia. It trades about 0.14 of its potential returns per unit of risk. Pampa Energia SA is currently generating about 0.09 per unit of risk. If you would invest  6,813  in NRG Energy on January 25, 2024 and sell it today you would earn a total of  449.00  from holding NRG Energy or generate 6.59% return on investment over 90 days.

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

NRG Energy  vs.  Pampa Energia SA

NRG Energy

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, NRG Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pampa Energia SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pampa Energia SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with NRG Energy and Pampa Energia

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

The idea behind NRG Energy and Pampa Energia SA 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.