Correlation Between CenterPoint Energy and Allegiant Travel
Can any of the company-specific risk be diversified away by investing in both CenterPoint Energy and Allegiant Travel 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 Allegiant Travel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CenterPoint Energy and Allegiant Travel, you can compare the effects of market volatilities on CenterPoint Energy and Allegiant Travel 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 Allegiant Travel. Check out your portfolio center. Please also check ongoing floating volatility patterns of CenterPoint Energy and Allegiant Travel.
Diversification Opportunities for CenterPoint Energy and Allegiant Travel
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between CenterPoint and Allegiant is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding CenterPoint Energy and Allegiant Travel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegiant Travel 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 Allegiant Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegiant Travel has no effect on the direction of CenterPoint Energy i.e., CenterPoint Energy and Allegiant Travel go up and down completely randomly.
Pair Corralation between CenterPoint Energy and Allegiant Travel
Considering the 90-day investment horizon CenterPoint Energy is expected to generate 2.99 times less return on investment than Allegiant Travel. But when comparing it to its historical volatility, CenterPoint Energy is 2.9 times less risky than Allegiant Travel. It trades about 0.22 of its potential returns per unit of risk. Allegiant Travel is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 7,483 in Allegiant Travel on September 12, 2024 and sell it today you would earn a total of 1,187 from holding Allegiant Travel or generate 15.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
CenterPoint Energy vs. Allegiant Travel
Performance |
| Timeline |
| CenterPoint Energy |
| Allegiant Travel |
CenterPoint Energy and Allegiant Travel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CenterPoint Energy and Allegiant Travel
The main advantage of trading using opposite CenterPoint Energy and Allegiant Travel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CenterPoint Energy position performs unexpectedly, Allegiant Travel 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 Allegiant Travel will offset losses from the drop in Allegiant Travel's long position.The idea behind CenterPoint Energy and Allegiant Travel 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.| Allegiant Travel vs. Volaris | Allegiant Travel vs. flyExclusive, | Allegiant Travel vs. Alaska Air Group | Allegiant Travel vs. Copa Holdings SA |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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