Correlation Between CenterPoint Energy and FirstEnergy

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

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

Diversification Opportunities for CenterPoint Energy and FirstEnergy

-0.49

Correlation Coefficient

CenterPoint Energy  FirstEnergy

Very good diversification

The 3 months correlation between CenterPoint and FirstEnergy is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding CenterPoint Energy and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy and CenterPoint 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 CenterPoint Energy are associated (or correlated) with FirstEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstEnergy has no effect on the direction of CenterPoint Energy i.e., CenterPoint Energy and FirstEnergy go up and down completely randomly.

Pair Corralation between CenterPoint Energy and FirstEnergy

Considering the 90-day investment horizon CenterPoint Energy is expected to generate 1.2 times more return on investment than FirstEnergy. However, CenterPoint Energy is 1.2 times more volatile than FirstEnergy. It trades about 0.04 of its potential returns per unit of risk. FirstEnergy is currently generating about 0.05 per unit of risk. If you would invest  2,791  in CenterPoint Energy on September 2, 2024 and sell it today you would earn a total of  471.00  from holding CenterPoint Energy or generate 16.88% return on investment over 90 days.

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

CenterPoint Energy  vs.  FirstEnergy

CenterPoint Energy

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, CenterPoint Energy reported solid returns over the last few months and may actually be approaching a breakup point.

FirstEnergy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with CenterPoint Energy and FirstEnergy

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

The idea behind CenterPoint Energy and FirstEnergy 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.