Correlation Between Pinnacle West and CenterPoint Energy

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

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

Diversification Opportunities for Pinnacle West and CenterPoint Energy

0.94

Correlation Coefficient

Pinnacle West  CenterPoint Energy

Almost no diversification

The 3 months correlation between Pinnacle and CenterPoint is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle West Capital and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy and Pinnacle West 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 Pinnacle West Capital 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 Pinnacle West i.e., Pinnacle West and CenterPoint Energy go up and down completely randomly.

Pair Corralation between Pinnacle West and CenterPoint Energy

Considering the 90-day investment horizon Pinnacle West is expected to generate 1.18 times less return on investment than CenterPoint Energy. But when comparing it to its historical volatility, Pinnacle West Capital is 1.0 times less risky than CenterPoint Energy. It trades about 0.17 of its potential returns per unit of risk. CenterPoint Energy is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,162  in CenterPoint Energy on December 30, 2024 and sell it today you would earn a total of  463.00  from holding CenterPoint Energy or generate 14.64% return on investment over 90 days.

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

Pinnacle West Capital  vs.  CenterPoint Energy

Pinnacle West Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pinnacle West Capital are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Pinnacle West 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 15 (%) 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 Pinnacle West and CenterPoint Energy

The main advantage of trading using opposite Pinnacle West and CenterPoint Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pinnacle West 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 Pinnacle West Capital 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 Transaction History module to view history of all your transactions and understand their impact on performance.