Correlation Between Addus HomeCare and CenterPoint Energy

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

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

Diversification Opportunities for Addus HomeCare and CenterPoint Energy

-0.6

Correlation Coefficient

Addus HomeCare  CenterPoint Energy

Excellent diversification

The 3 months correlation between Addus and CenterPoint is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Addus HomeCare and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy and Addus HomeCare 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 Addus HomeCare 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 Addus HomeCare i.e., Addus HomeCare and CenterPoint Energy go up and down completely randomly.

Pair Corralation between Addus HomeCare and CenterPoint Energy

Given the investment horizon of 90 days Addus HomeCare is expected to generate 1.71 times more return on investment than CenterPoint Energy. However, Addus HomeCare is 1.71 times more volatile than CenterPoint Energy. It trades about 0.04 of its potential returns per unit of risk. CenterPoint Energy is currently generating about 0.03 per unit of risk. If you would invest  9,930  in Addus HomeCare on September 23, 2024 and sell it today you would earn a total of  3,210  from holding Addus HomeCare or generate 32.33% return on investment over 90 days.

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

Addus HomeCare  vs.  CenterPoint Energy

Addus HomeCare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Addus HomeCare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Addus HomeCare is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

CenterPoint Energy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 12 (%) 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 January 2025.

Pair Trading with Addus HomeCare and CenterPoint Energy

The main advantage of trading using opposite Addus HomeCare and CenterPoint Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Addus HomeCare 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 Addus HomeCare 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.