Correlation Between Black Hills and SkyWest

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

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

Diversification Opportunities for Black Hills and SkyWest

0.08

Correlation Coefficient

Black Hills  SkyWest

Significant diversification

The 3 months correlation between Black and SkyWest is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and SkyWest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SkyWest 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 SkyWest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SkyWest has no effect on the direction of Black Hills i.e., Black Hills and SkyWest go up and down completely randomly.

Pair Corralation between Black Hills and SkyWest

Considering the 90-day investment horizon Black Hills is expected to generate 4.63 times less return on investment than SkyWest. But when comparing it to its historical volatility, Black Hills is 1.74 times less risky than SkyWest. It trades about 0.04 of its potential returns per unit of risk. SkyWest is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  7,541  in SkyWest on December 4, 2024 and sell it today you would earn a total of  2,104  from holding SkyWest or generate 27.9% return on investment over 90 days.

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

Black Hills  vs.  SkyWest

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.

SkyWest

Risk-Adjusted Performance

Very Weak

Over the last 90 days SkyWest has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Black Hills and SkyWest

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

The idea behind Black Hills and SkyWest 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.