Correlation Between NorthWestern and CenterPoint Energy
Can any of the company-specific risk be diversified away by investing in both NorthWestern 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 NorthWestern and CenterPoint Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NorthWestern and CenterPoint Energy, you can compare the effects of market volatilities on NorthWestern 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 NorthWestern with a short position of CenterPoint Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of NorthWestern and CenterPoint Energy.
Diversification Opportunities for NorthWestern and CenterPoint Energy
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between NorthWestern and CenterPoint is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding NorthWestern and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy and NorthWestern 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 NorthWestern 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 NorthWestern i.e., NorthWestern and CenterPoint Energy go up and down completely randomly.
Pair Corralation between NorthWestern and CenterPoint Energy
Considering the 90-day investment horizon NorthWestern is expected to generate 1.33 times less return on investment than CenterPoint Energy. But when comparing it to its historical volatility, NorthWestern is 1.04 times less risky than CenterPoint Energy. It trades about 0.02 of its potential returns per unit of risk. CenterPoint Energy is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 2,880 in CenterPoint Energy on August 24, 2024 and sell it today you would earn a total of 313.00 from holding CenterPoint Energy or generate 10.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NorthWestern vs. CenterPoint Energy
Performance |
| Timeline |
| NorthWestern |
| CenterPoint Energy |
NorthWestern and CenterPoint Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NorthWestern and CenterPoint Energy
The main advantage of trading using opposite NorthWestern and CenterPoint Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NorthWestern 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.| NorthWestern vs. Allete Inc | NorthWestern vs. Black Hills | NorthWestern vs. Otter Tail | NorthWestern vs. Avista |
| CenterPoint Energy vs. Korea Electric Power | CenterPoint Energy vs. Centrais Electricas Brasileiras | CenterPoint Energy vs. MGE Energy | CenterPoint Energy vs. IDACORP |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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