Correlation Between NRG Energy and CenterPoint Energy

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

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

Diversification Opportunities for NRG Energy and CenterPoint Energy

0.0

Correlation Coefficient

NRG Energy  CenterPoint Energy

Pay attention - limited upside

The 3 months correlation between NRG and CenterPoint is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding NRG Energy and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy and NRG 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 NRG Energy 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 NRG Energy i.e., NRG Energy and CenterPoint Energy go up and down completely randomly.

Pair Corralation between NRG Energy and CenterPoint Energy

Considering the 90-day investment horizon NRG Energy is expected to generate 1.47 times less return on investment than CenterPoint Energy. In addition to that, NRG Energy is 3.32 times more volatile than CenterPoint Energy. It trades about 0.04 of its total potential returns per unit of risk. CenterPoint Energy is currently generating about 0.18 per unit of volatility. If you would invest  3,162  in CenterPoint Energy on December 28, 2024 and sell it today you would earn a total of  405.00  from holding CenterPoint Energy or generate 12.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

NRG Energy  vs.  CenterPoint Energy

NRG Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NRG Energy are ranked lower than 2 (%) 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.

CenterPoint Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 14 (%) 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 NRG Energy and CenterPoint Energy

The main advantage of trading using opposite NRG Energy and CenterPoint Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NRG Energy 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 NRG Energy 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.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.