Correlation Between Snam SpA and CenterPoint Energy

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

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

Diversification Opportunities for Snam SpA and CenterPoint Energy

-0.44

Correlation Coefficient

Snam SpA  CenterPoint Energy

Very good diversification

The 3 months correlation between Snam and CenterPoint is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Snam SpA and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy and Snam SpA 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 Snam SpA 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 Snam SpA i.e., Snam SpA and CenterPoint Energy go up and down completely randomly.

Pair Corralation between Snam SpA and CenterPoint Energy

Assuming the 90 days horizon Snam SpA is expected to under-perform the CenterPoint Energy. But the stock apears to be less risky and, when comparing its historical volatility, Snam SpA is 1.78 times less risky than CenterPoint Energy. The stock trades about -0.08 of its potential returns per unit of risk. The CenterPoint Energy is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,641  in CenterPoint Energy on October 13, 2024 and sell it today you would earn a total of  339.00  from holding CenterPoint Energy or generate 12.84% return on investment over 90 days.

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

Snam SpA  vs.  CenterPoint Energy

Snam SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Snam SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Snam SpA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

CenterPoint Energy

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CenterPoint Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Snam SpA and CenterPoint Energy

The main advantage of trading using opposite Snam SpA and CenterPoint Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Snam SpA 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 Snam SpA 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.