Correlation Between Pinnacle West and FirstEnergy
Can any of the company-specific risk be diversified away by investing in both Pinnacle West and FirstEnergy 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 Pinnacle West and FirstEnergy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pinnacle West Capital and FirstEnergy, you can compare the effects of market volatilities on Pinnacle West and FirstEnergy 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 Pinnacle West with a short position of FirstEnergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pinnacle West and FirstEnergy.
Diversification Opportunities for Pinnacle West and FirstEnergy
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Pinnacle and FirstEnergy is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle West Capital and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy and Pinnacle West 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 Pinnacle West Capital are associated (or correlated) with FirstEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstEnergy has no effect on the direction of Pinnacle West i.e., Pinnacle West and FirstEnergy go up and down completely randomly.
Pair Corralation between Pinnacle West and FirstEnergy
Considering the 90-day investment horizon Pinnacle West Capital is expected to generate 1.1 times more return on investment than FirstEnergy. However, Pinnacle West is 1.1 times more volatile than FirstEnergy. It trades about 0.05 of its potential returns per unit of risk. FirstEnergy is currently generating about 0.02 per unit of risk. If you would invest 7,133 in Pinnacle West Capital on August 27, 2024 and sell it today you would earn a total of 2,160 from holding Pinnacle West Capital or generate 30.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Pinnacle West Capital vs. FirstEnergy
Performance |
| Timeline |
| Pinnacle West Capital |
| FirstEnergy |
Pinnacle West and FirstEnergy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pinnacle West and FirstEnergy
The main advantage of trading using opposite Pinnacle West and FirstEnergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pinnacle West position performs unexpectedly, FirstEnergy 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 FirstEnergy will offset losses from the drop in FirstEnergy's long position.| Pinnacle West vs. CMS Energy | Pinnacle West vs. Ameren Corp | Pinnacle West vs. MGE Energy | Pinnacle West vs. Evergy, |
| FirstEnergy vs. CenterPoint Energy | FirstEnergy vs. Pinnacle West Capital | FirstEnergy vs. Edison International | FirstEnergy vs. Public Service Enterprise |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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