Correlation Between CenterPoint Energy and NRG Energy

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

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

Diversification Opportunities for CenterPoint Energy and NRG Energy

0.64

Correlation Coefficient

CenterPoint Energy  NRG Energy

Poor diversification

The 3 months correlation between CenterPoint and NRG is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding CenterPoint Energy and NRG Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRG Energy 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 NRG Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRG Energy has no effect on the direction of CenterPoint Energy i.e., CenterPoint Energy and NRG Energy go up and down completely randomly.

Pair Corralation between CenterPoint Energy and NRG Energy

Considering the 90-day investment horizon CenterPoint Energy is expected to generate 1.7 times less return on investment than NRG Energy. But when comparing it to its historical volatility, CenterPoint Energy is 3.43 times less risky than NRG Energy. It trades about 0.22 of its potential returns per unit of risk. NRG Energy is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  9,235  in NRG Energy on December 2, 2024 and sell it today you would earn a total of  1,336  from holding NRG Energy or generate 14.47% return on investment over 90 days.

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

CenterPoint Energy  vs.  NRG Energy

CenterPoint Energy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 9 (%) 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.

NRG Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, NRG Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with CenterPoint Energy and NRG Energy

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

The idea behind CenterPoint Energy and NRG Energy 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.