Correlation Between Nextera Energy and SP 500

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Can any of the company-specific risk be diversified away by investing in both Nextera Energy and SP 500 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 Nextera Energy and SP 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nextera Energy and SP 500 Technology, you can compare the effects of market volatilities on Nextera Energy and SP 500 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 Nextera Energy with a short position of SP 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nextera Energy and SP 500.

Diversification Opportunities for Nextera Energy and SP 500

0.57
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Nextera and SP 500 is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy and SP 500 Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 Technology and Nextera 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 Nextera Energy are associated (or correlated) with SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 Technology has no effect on the direction of Nextera Energy i.e., Nextera Energy and SP 500 go up and down completely randomly.

Pair Corralation between Nextera Energy and SP 500

Considering the 90-day investment horizon Nextera Energy is expected to generate 0.97 times more return on investment than SP 500. However, Nextera Energy is 1.03 times less risky than SP 500. It trades about 0.01 of its potential returns per unit of risk. SP 500 Technology is currently generating about -0.03 per unit of risk. If you would invest  9,072  in Nextera Energy on May 12, 2022 and sell it today you would lose (143.00)  from holding Nextera Energy or give up 1.58% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Nextera Energy  vs.  SP 500 Technology

 Performance (%) 
       Timeline  
Nextera Energy 
Nextera Performance
18 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Nextera Energy are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Nextera Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nextera Price Channel

SP 500 Technology 
SP 500 Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in SP 500 Technology are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady essential indicators, SP 500 demonstrated solid returns over the last few months and may actually be approaching a breakup point.

SP 500 Price Channel

Nextera Energy and SP 500 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nextera Energy and SP 500

The main advantage of trading using opposite Nextera Energy and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nextera Energy position performs unexpectedly, SP 500 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 SP 500 will offset losses from the drop in SP 500's long position.
The idea behind Nextera Energy and SP 500 Technology 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.

SP 500 Technology

Pair trading matchups for SP 500

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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