Correlation Between National Grid and RWE AG

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

By analyzing existing cross correlation between National Grid PLC and RWE AG, you can compare the effects of market volatilities on National Grid and RWE AG 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 National Grid with a short position of RWE AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Grid and RWE AG.

Diversification Opportunities for National Grid and RWE AG

0.06

Correlation Coefficient

National Grid  RWE AG

Significant diversification

The 3 months correlation between National and RWE is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding National Grid PLC and RWE AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RWE AG and National Grid 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 National Grid PLC are associated (or correlated) with RWE AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RWE AG has no effect on the direction of National Grid i.e., National Grid and RWE AG go up and down completely randomly.

Pair Corralation between National Grid and RWE AG

Assuming the 90 days trading horizon National Grid is expected to generate 2.9 times less return on investment than RWE AG. In addition to that, National Grid is 1.33 times more volatile than RWE AG. It trades about 0.05 of its total potential returns per unit of risk. RWE AG is currently generating about 0.19 per unit of volatility. If you would invest  3,282  in RWE AG on April 25, 2025 and sell it today you would earn a total of  538.00  from holding RWE AG or generate 16.39% return on investment over 90 days.

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

National Grid PLC  vs.  RWE AG

National Grid PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in National Grid PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, National Grid is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

RWE AG

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RWE AG are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, RWE AG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Grid and RWE AG

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

The idea behind National Grid PLC and RWE AG 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 AI Portfolio Prophet module to use AI to generate optimal portfolios and find profitable investment opportunities.