Correlation Between CenterPoint Energy and Cadence Design

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

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

Diversification Opportunities for CenterPoint Energy and Cadence Design

-0.51

Correlation Coefficient

CenterPoint Energy  Cadence Design

Excellent diversification

The 3 months correlation between CenterPoint and Cadence is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding CenterPoint Energy and Cadence Design Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cadence Design Systems 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 Cadence Design. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cadence Design Systems has no effect on the direction of CenterPoint Energy i.e., CenterPoint Energy and Cadence Design go up and down completely randomly.

Pair Corralation between CenterPoint Energy and Cadence Design

Considering the 90-day investment horizon CenterPoint Energy is expected to generate 0.67 times more return on investment than Cadence Design. However, CenterPoint Energy is 1.5 times less risky than Cadence Design. It trades about 0.32 of its potential returns per unit of risk. Cadence Design Systems is currently generating about 0.06 per unit of risk. If you would invest  2,722  in CenterPoint Energy on March 15, 2024 and sell it today you would earn a total of  377.00  from holding CenterPoint Energy or generate 13.85% return on investment over 90 days.

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

CenterPoint Energy  vs.  Cadence Design Systems

CenterPoint Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CenterPoint Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, CenterPoint Energy may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Cadence Design Systems

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Design Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cadence Design is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CenterPoint Energy and Cadence Design

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

The idea behind CenterPoint Energy and Cadence Design Systems 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.