Correlation Between CenterPoint Energy and Lincoln Electric

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

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

Diversification Opportunities for CenterPoint Energy and Lincoln Electric

0.38

Correlation Coefficient

CenterPoint Energy  Lincoln Electric

Weak diversification

The 3 months correlation between CenterPoint and Lincoln is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding CenterPoint Energy and Lincoln Electric Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln Electric Holdings 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 Lincoln Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln Electric Holdings has no effect on the direction of CenterPoint Energy i.e., CenterPoint Energy and Lincoln Electric go up and down completely randomly.

Pair Corralation between CenterPoint Energy and Lincoln Electric

Considering the 90-day investment horizon CenterPoint Energy is expected to generate 0.55 times more return on investment than Lincoln Electric. However, CenterPoint Energy is 1.81 times less risky than Lincoln Electric. It trades about 0.18 of its potential returns per unit of risk. Lincoln Electric Holdings is currently generating about 0.02 per unit of risk. If you would invest  3,189  in CenterPoint Energy on December 22, 2024 and sell it today you would earn a total of  388.00  from holding CenterPoint Energy or generate 12.17% return on investment over 90 days.

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

CenterPoint Energy  vs.  Lincoln Electric Holdings

CenterPoint Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, CenterPoint Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Lincoln Electric Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Electric Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Lincoln Electric is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with CenterPoint Energy and Lincoln Electric

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

The idea behind CenterPoint Energy and Lincoln Electric Holdings 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.