Correlation Between Avista and Black Hills

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

By analyzing existing cross correlation between Avista and Black Hills, you can compare the effects of market volatilities on Avista and Black Hills 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 Avista with a short position of Black Hills. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avista and Black Hills.

Diversification Opportunities for Avista and Black Hills

0.84

Correlation Coefficient

Avista  Black Hills

Very poor diversification

The 3 months correlation between Avista and Black is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Avista and Black Hills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Hills and Avista 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 Avista are associated (or correlated) with Black Hills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Hills has no effect on the direction of Avista i.e., Avista and Black Hills go up and down completely randomly.

Pair Corralation between Avista and Black Hills

Considering the 90-day investment horizon Avista is expected to generate 1.14 times more return on investment than Black Hills. However, Avista is 1.14 times more volatile than Black Hills. It trades about 0.04 of its potential returns per unit of risk. Black Hills is currently generating about -0.06 per unit of risk. If you would invest  3,869  in Avista on November 28, 2024 and sell it today you would earn a total of  101.00  from holding Avista or generate 2.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Avista  vs.  Black Hills

Avista

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avista are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Avista is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Black Hills

Risk-Adjusted Performance

Very Weak

Over the last 90 days Black Hills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong forward-looking signals, Black Hills is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Avista and Black Hills

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

The idea behind Avista and Black Hills 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.

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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.