Correlation Between CenterPoint Energy and PNM Resources

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

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

Diversification Opportunities for CenterPoint Energy and PNM Resources

0.88

Correlation Coefficient

CenterPoint Energy  PNM Resources

Very poor diversification

The 3 months correlation between CenterPoint and PNM is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding CenterPoint Energy and PNM Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNM Resources 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 PNM Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PNM Resources has no effect on the direction of CenterPoint Energy i.e., CenterPoint Energy and PNM Resources go up and down completely randomly.

Pair Corralation between CenterPoint Energy and PNM Resources

Considering the 90-day investment horizon CenterPoint Energy is expected to generate 1.88 times more return on investment than PNM Resources. However, CenterPoint Energy is 1.88 times more volatile than PNM Resources. It trades about 0.17 of its potential returns per unit of risk. PNM Resources is currently generating about 0.21 per unit of risk. If you would invest  2,774  in CenterPoint Energy on September 13, 2024 and sell it today you would earn a total of  367.00  from holding CenterPoint Energy or generate 13.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	26.98%
Values	Daily Returns

CenterPoint Energy  vs.  PNM Resources

CenterPoint Energy

Risk-Adjusted Performance

13 of 100

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 conflicting basic indicators, CenterPoint Energy reported solid returns over the last few months and may actually be approaching a breakup point.

PNM Resources

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days PNM Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, PNM Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with CenterPoint Energy and PNM Resources

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

The idea behind CenterPoint Energy and PNM Resources 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.