Correlation Between Black Hills and PacifiCorp

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

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

Diversification Opportunities for Black Hills and PacifiCorp

-0.04

Correlation Coefficient

Black Hills  PacifiCorp

Good diversification

The 3 months correlation between Black and PacifiCorp is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and PacifiCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacifiCorp 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 PacifiCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacifiCorp has no effect on the direction of Black Hills i.e., Black Hills and PacifiCorp go up and down completely randomly.

Pair Corralation between Black Hills and PacifiCorp

Considering the 90-day investment horizon Black Hills is expected to generate 5.98 times less return on investment than PacifiCorp. But when comparing it to its historical volatility, Black Hills is 3.61 times less risky than PacifiCorp. It trades about 0.02 of its potential returns per unit of risk. PacifiCorp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  12,327  in PacifiCorp on September 15, 2024 and sell it today you would earn a total of  277.00  from holding PacifiCorp or generate 2.25% return on investment over 90 days.

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

Black Hills  vs.  PacifiCorp

Black Hills

Risk-Adjusted Performance

1 of 100

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.

PacifiCorp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PacifiCorp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent essential indicators, PacifiCorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Black Hills and PacifiCorp

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

The idea behind Black Hills and PacifiCorp 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.