Correlation Between Stepan and CenterPoint Energy
Can any of the company-specific risk be diversified away by investing in both Stepan 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 Stepan and CenterPoint Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and CenterPoint Energy, you can compare the effects of market volatilities on Stepan 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 Stepan with a short position of CenterPoint Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and CenterPoint Energy.
Diversification Opportunities for Stepan and CenterPoint Energy
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Stepan and CenterPoint is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy and Stepan 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 Stepan Company 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 Stepan i.e., Stepan and CenterPoint Energy go up and down completely randomly.
Pair Corralation between Stepan and CenterPoint Energy
Considering the 90-day investment horizon Stepan is expected to generate 5.19 times less return on investment than CenterPoint Energy. In addition to that, Stepan is 1.4 times more volatile than CenterPoint Energy. It trades about 0.01 of its total potential returns per unit of risk. CenterPoint Energy is currently generating about 0.07 per unit of volatility. If you would invest 2,628 in CenterPoint Energy on September 1, 2024 and sell it today you would earn a total of 634.00 from holding CenterPoint Energy or generate 24.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. CenterPoint Energy
Performance |
| Timeline |
| Stepan Company |
| CenterPoint Energy |
Stepan and CenterPoint Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and CenterPoint Energy
The main advantage of trading using opposite Stepan and CenterPoint Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan 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 Stepan Company 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.| CenterPoint Energy vs. DTE Energy | CenterPoint Energy vs. Alliant Energy Corp | CenterPoint Energy vs. Ameren Corp | CenterPoint Energy vs. Pinnacle West Capital |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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