Correlation Between Iwatani and CenterPoint Energy

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

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

Diversification Opportunities for Iwatani and CenterPoint Energy

-0.84

Correlation Coefficient

Iwatani  CenterPoint Energy

Pay attention - limited upside

The 3 months correlation between Iwatani and CenterPoint is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Iwatani and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy and Iwatani 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 Iwatani 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 Iwatani i.e., Iwatani and CenterPoint Energy go up and down completely randomly.

Pair Corralation between Iwatani and CenterPoint Energy

Assuming the 90 days trading horizon Iwatani is expected to under-perform the CenterPoint Energy. But the stock apears to be less risky and, when comparing its historical volatility, Iwatani is 1.04 times less risky than CenterPoint Energy. The stock trades about -0.18 of its potential returns per unit of risk. The CenterPoint Energy is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,482  in CenterPoint Energy on September 20, 2024 and sell it today you would earn a total of  538.00  from holding CenterPoint Energy or generate 21.68% return on investment over 90 days.

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

Iwatani  vs.  CenterPoint Energy

Iwatani

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iwatani has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

CenterPoint Energy

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CenterPoint Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iwatani and CenterPoint Energy

The main advantage of trading using opposite Iwatani and CenterPoint Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iwatani 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 Iwatani 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.