Correlation Between Black Hills and Alliant Energy

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

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

Diversification Opportunities for Black Hills and Alliant Energy

0.85

Correlation Coefficient

Black Hills  Alliant Energy

Very poor diversification

The 3 months correlation between Black and Alliant is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and Alliant Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliant Energy Corp and Black Hills 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 Black Hills are associated (or correlated) with Alliant Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliant Energy Corp has no effect on the direction of Black Hills i.e., Black Hills and Alliant Energy go up and down completely randomly.

Pair Corralation between Black Hills and Alliant Energy

Considering the 90-day investment horizon Black Hills is expected to under-perform the Alliant Energy. In addition to that, Black Hills is 1.16 times more volatile than Alliant Energy Corp. It trades about 0.0 of its total potential returns per unit of risk. Alliant Energy Corp is currently generating about 0.05 per unit of volatility. If you would invest  5,993  in Alliant Energy Corp on September 13, 2024 and sell it today you would earn a total of  48.00  from holding Alliant Energy Corp or generate 0.8% return on investment over 90 days.

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

Black Hills  vs.  Alliant Energy Corp

Black Hills

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Black Hills are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Alliant Energy Corp

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alliant Energy Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Alliant Energy is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Black Hills and Alliant Energy

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

The idea behind Black Hills and Alliant Energy Corp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.