Correlation Between Black Hills and Otter Tail

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

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

Diversification Opportunities for Black Hills and Otter Tail

0.8

Correlation Coefficient

Black Hills  Otter Tail

Very poor diversification

The 3 months correlation between Black and Otter is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and Otter Tail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otter Tail 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 Otter Tail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otter Tail has no effect on the direction of Black Hills i.e., Black Hills and Otter Tail go up and down completely randomly.

Pair Corralation between Black Hills and Otter Tail

Considering the 90-day investment horizon Black Hills is expected to generate 7.74 times less return on investment than Otter Tail. But when comparing it to its historical volatility, Black Hills is 1.34 times less risky than Otter Tail. It trades about 0.0 of its potential returns per unit of risk. Otter Tail is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6,870  in Otter Tail on December 28, 2024 and sell it today you would earn a total of  1,185  from holding Otter Tail or generate 17.25% 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.  Otter Tail

Black Hills

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Black Hills are ranked lower than 3 (%) 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.

Otter Tail

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Otter Tail are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Otter Tail may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Black Hills and Otter Tail

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

The idea behind Black Hills and Otter Tail 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.