Correlation Between CenterPoint Energy and Public Service

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

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

Diversification Opportunities for CenterPoint Energy and Public Service

0.85

Correlation Coefficient

CenterPoint Energy  Public Service

Very poor diversification

The 3 months correlation between CenterPoint and Public is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding CenterPoint Energy and Public Service Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Public Service Enterprise 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 Public Service. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Public Service Enterprise has no effect on the direction of CenterPoint Energy i.e., CenterPoint Energy and Public Service go up and down completely randomly.

Pair Corralation between CenterPoint Energy and Public Service

Considering the 90-day investment horizon CenterPoint Energy is expected to generate 0.8 times more return on investment than Public Service. However, CenterPoint Energy is 1.25 times less risky than Public Service. It trades about 0.24 of its potential returns per unit of risk. Public Service Enterprise is currently generating about 0.19 per unit of risk. If you would invest  2,731  in CenterPoint Energy on August 31, 2024 and sell it today you would earn a total of  535.00  from holding CenterPoint Energy or generate 19.59% return on investment over 90 days.

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

CenterPoint Energy  vs.  Public Service Enterprise

CenterPoint Energy

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 19 (%) 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.

Public Service Enterprise

Risk-Adjusted Performance

14 of 100

Good

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

Pair Trading with CenterPoint Energy and Public Service

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

The idea behind CenterPoint Energy and Public Service Enterprise 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.

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 the Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.