Correlation Between Black Hills and PGE Corp

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

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

Diversification Opportunities for Black Hills and PGE Corp

-0.4

Correlation Coefficient

Black Hills  PGE Corp

Very good diversification

The 3 months correlation between Black and PGE is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and PGE Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGE 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 PGE Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGE Corp has no effect on the direction of Black Hills i.e., Black Hills and PGE Corp go up and down completely randomly.

Pair Corralation between Black Hills and PGE Corp

Considering the 90-day investment horizon Black Hills is expected to generate 0.56 times more return on investment than PGE Corp. However, Black Hills is 1.79 times less risky than PGE Corp. It trades about 0.02 of its potential returns per unit of risk. PGE Corp is currently generating about -0.11 per unit of risk. If you would invest  5,831  in Black Hills on December 26, 2024 and sell it today you would earn a total of  51.00  from holding Black Hills or generate 0.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Black Hills  vs.  PGE Corp

Black Hills

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Black Hills are ranked lower than 1 (%) 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.

PGE Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days PGE Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Black Hills and PGE Corp

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

The idea behind Black Hills and PGE 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.