Correlation Between PNM Resources and PPL
Can any of the company-specific risk be diversified away by investing in both PNM Resources and PPL 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 PNM Resources and PPL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PNM Resources and PPL Corporation, you can compare the effects of market volatilities on PNM Resources and PPL 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 PNM Resources with a short position of PPL. Check out your portfolio center. Please also check ongoing floating volatility patterns of PNM Resources and PPL.
Diversification Opportunities for PNM Resources and PPL
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between PNM and PPL is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding PNM Resources and PPL Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPL Corporation and PNM Resources 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 PNM Resources are associated (or correlated) with PPL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPL Corporation has no effect on the direction of PNM Resources i.e., PNM Resources and PPL go up and down completely randomly.
Pair Corralation between PNM Resources and PPL
Considering the 90-day investment horizon PNM Resources is expected to generate 3.18 times less return on investment than PPL. In addition to that, PNM Resources is 1.24 times more volatile than PPL Corporation. It trades about 0.03 of its total potential returns per unit of risk. PPL Corporation is currently generating about 0.13 per unit of volatility. If you would invest 2,520 in PPL Corporation on August 26, 2024 and sell it today you would earn a total of 925.00 from holding PPL Corporation or generate 36.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 85.94% |
| Values | Daily Returns |
PNM Resources vs. PPL Corp.
Performance |
| Timeline |
| PNM Resources |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
| PPL Corporation |
PNM Resources and PPL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PNM Resources and PPL
The main advantage of trading using opposite PNM Resources and PPL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PNM Resources position performs unexpectedly, PPL 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 PPL will offset losses from the drop in PPL's long position.| PNM Resources vs. Portland General Electric | PNM Resources vs. MGE Energy | PNM Resources vs. CMS Energy | PNM Resources vs. OGE Energy |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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