Correlation Between Allete and PacifiCorp
Can any of the company-specific risk be diversified away by investing in both Allete and PacifiCorp 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 Allete and PacifiCorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Allete Inc and PacifiCorp, you can compare the effects of market volatilities on Allete and PacifiCorp 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 Allete with a short position of PacifiCorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allete and PacifiCorp.
Diversification Opportunities for Allete and PacifiCorp
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Allete and PacifiCorp is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Allete Inc and PacifiCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacifiCorp and Allete 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 Allete Inc are associated (or correlated) with PacifiCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacifiCorp has no effect on the direction of Allete i.e., Allete and PacifiCorp go up and down completely randomly.
Pair Corralation between Allete and PacifiCorp
Considering the 90-day investment horizon Allete is expected to generate 10.69 times less return on investment than PacifiCorp. But when comparing it to its historical volatility, Allete Inc is 12.53 times less risky than PacifiCorp. It trades about 0.13 of its potential returns per unit of risk. PacifiCorp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 10,723 in PacifiCorp on October 7, 2024 and sell it today you would earn a total of 7,277 from holding PacifiCorp or generate 67.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Allete Inc vs. PacifiCorp
Performance |
| Timeline |
| Allete Inc |
| PacifiCorp |
Allete and PacifiCorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Allete and PacifiCorp
The main advantage of trading using opposite Allete and PacifiCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allete position performs unexpectedly, PacifiCorp 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 PacifiCorp will offset losses from the drop in PacifiCorp's long position.| Allete vs. Avista | Allete vs. Black Hills | Allete vs. Montauk Renewables | Allete vs. Companhia Paranaense de |
| PacifiCorp vs. Townsquare Media | PacifiCorp vs. BOS Better Online | PacifiCorp vs. 51Talk Online Education | PacifiCorp vs. Magnite |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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