Correlation Between Black Hills and Spire

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

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

Diversification Opportunities for Black Hills and Spire

0.87

Correlation Coefficient

Black Hills  Spire

Very poor diversification

The 3 months correlation between Black and Spire is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and Spire Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spire Inc 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 Spire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spire Inc has no effect on the direction of Black Hills i.e., Black Hills and Spire go up and down completely randomly.

Pair Corralation between Black Hills and Spire

Considering the 90-day investment horizon Black Hills is expected to generate 4.89 times less return on investment than Spire. But when comparing it to its historical volatility, Black Hills is 1.02 times less risky than Spire. It trades about 0.04 of its potential returns per unit of risk. Spire Inc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  6,643  in Spire Inc on December 27, 2024 and sell it today you would earn a total of  1,088  from holding Spire Inc or generate 16.38% 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.  Spire Inc

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.

Spire Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Spire Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Spire reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Black Hills and Spire

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

The idea behind Black Hills and Spire Inc 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.