Correlation Between Black Hills and WEC Energy

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

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

Diversification Opportunities for Black Hills and WEC Energy

0.87

Correlation Coefficient

Black Hills  WEC Energy

Very poor diversification

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

Pair Corralation between Black Hills and WEC Energy

Considering the 90-day investment horizon Black Hills is expected to generate 7.9 times less return on investment than WEC Energy. In addition to that, Black Hills is 1.02 times more volatile than WEC Energy Group. It trades about 0.02 of its total potential returns per unit of risk. WEC Energy Group is currently generating about 0.14 per unit of volatility. If you would invest  9,405  in WEC Energy Group on December 26, 2024 and sell it today you would earn a total of  1,026  from holding WEC Energy Group or generate 10.91% 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.  WEC Energy Group

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.

WEC Energy Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WEC Energy Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, WEC Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Black Hills and WEC Energy

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

The idea behind Black Hills and WEC Energy Group 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.