Correlation Between PPL and Pinnacle West
Can any of the company-specific risk be diversified away by investing in both PPL and Pinnacle West 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 PPL and Pinnacle West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PPL Corporation and Pinnacle West Capital, you can compare the effects of market volatilities on PPL and Pinnacle West 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 PPL with a short position of Pinnacle West. Check out your portfolio center. Please also check ongoing floating volatility patterns of PPL and Pinnacle West.
Diversification Opportunities for PPL and Pinnacle West
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between PPL and Pinnacle is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding PPL Corp. and Pinnacle West Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinnacle West Capital and PPL 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 PPL Corporation are associated (or correlated) with Pinnacle West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pinnacle West Capital has no effect on the direction of PPL i.e., PPL and Pinnacle West go up and down completely randomly.
Pair Corralation between PPL and Pinnacle West
Considering the 90-day investment horizon PPL Corporation is expected to generate 0.9 times more return on investment than Pinnacle West. However, PPL Corporation is 1.11 times less risky than Pinnacle West. It trades about 0.17 of its potential returns per unit of risk. Pinnacle West Capital is currently generating about 0.15 per unit of risk. If you would invest 2,761 in PPL Corporation on September 3, 2024 and sell it today you would earn a total of 732.00 from holding PPL Corporation or generate 26.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
PPL Corp. vs. Pinnacle West Capital
Performance |
| Timeline |
| PPL Corporation |
| Pinnacle West Capital |
PPL and Pinnacle West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PPL and Pinnacle West
The main advantage of trading using opposite PPL and Pinnacle West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PPL position performs unexpectedly, Pinnacle West 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 Pinnacle West will offset losses from the drop in Pinnacle West's long position.The idea behind PPL Corporation and Pinnacle West Capital 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.| Pinnacle West vs. CMS Energy | Pinnacle West vs. Ameren Corp | Pinnacle West vs. MGE Energy | Pinnacle West vs. Evergy, |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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