Correlation Between KLA Tencor and CenterPoint Energy

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

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

Diversification Opportunities for KLA Tencor and CenterPoint Energy

-0.62

Correlation Coefficient

KLA Tencor  CenterPoint Energy

Excellent diversification

The 3 months correlation between KLA and CenterPoint is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy and KLA Tencor 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 KLA Tencor are associated (or correlated) with CenterPoint Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CenterPoint Energy has no effect on the direction of KLA Tencor i.e., KLA Tencor and CenterPoint Energy go up and down completely randomly.

Pair Corralation between KLA Tencor and CenterPoint Energy

Given the investment horizon of 90 days KLA Tencor is expected to generate 3.6 times less return on investment than CenterPoint Energy. In addition to that, KLA Tencor is 1.76 times more volatile than CenterPoint Energy. It trades about 0.05 of its total potential returns per unit of risk. CenterPoint Energy is currently generating about 0.32 per unit of volatility. If you would invest  2,978  in CenterPoint Energy on September 15, 2024 and sell it today you would earn a total of  216.00  from holding CenterPoint Energy or generate 7.25% return on investment over 90 days.

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

KLA Tencor  vs.  CenterPoint Energy

KLA Tencor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KLA Tencor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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

Pair Trading with KLA Tencor and CenterPoint Energy

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

The idea behind KLA Tencor and CenterPoint 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.