Correlation Between CenterPoint Energy and Black Hills

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

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

Diversification Opportunities for CenterPoint Energy and Black Hills

0.85

Correlation Coefficient

CenterPoint Energy  Black Hills

Very poor diversification

The 3 months correlation between CenterPoint and Black is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding CenterPoint Energy and Black Hills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Hills 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 Black Hills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Hills has no effect on the direction of CenterPoint Energy i.e., CenterPoint Energy and Black Hills go up and down completely randomly.

Pair Corralation between CenterPoint Energy and Black Hills

Considering the 90-day investment horizon CenterPoint Energy is expected to generate 0.84 times more return on investment than Black Hills. However, CenterPoint Energy is 1.19 times less risky than Black Hills. It trades about 0.2 of its potential returns per unit of risk. Black Hills is currently generating about 0.13 per unit of risk. If you would invest  2,805  in CenterPoint Energy on February 5, 2024 and sell it today you would earn a total of  140.00  from holding CenterPoint Energy or generate 4.99% 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.  Black Hills

CenterPoint Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, CenterPoint Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Black Hills

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Black Hills are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady forward-looking signals, Black Hills demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CenterPoint Energy and Black Hills

The main advantage of trading using opposite CenterPoint Energy and Black Hills positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CenterPoint Energy position performs unexpectedly, Black Hills 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 Black Hills will offset losses from the drop in Black Hills' long position.

The idea behind CenterPoint Energy and Black Hills 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.