Correlation Between Entergy Texas and PacifiCorp

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

By analyzing existing cross correlation between Entergy Texas and PacifiCorp, you can compare the effects of market volatilities on Entergy Texas 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 Entergy Texas with a short position of PacifiCorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Entergy Texas and PacifiCorp.

Diversification Opportunities for Entergy Texas and PacifiCorp

-0.19

Correlation Coefficient

Entergy Texas  PacifiCorp

Good diversification

The 3 months correlation between Entergy and PacifiCorp is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Entergy Texas and PacifiCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacifiCorp and Entergy Texas 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 Entergy Texas 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 Entergy Texas i.e., Entergy Texas and PacifiCorp go up and down completely randomly.

Pair Corralation between Entergy Texas and PacifiCorp

Assuming the 90 days horizon Entergy Texas is expected to generate 310.47 times less return on investment than PacifiCorp. But when comparing it to its historical volatility, Entergy Texas is 214.08 times less risky than PacifiCorp. It trades about 0.11 of its potential returns per unit of risk. PacifiCorp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  100,000,000  in PacifiCorp on December 22, 2024 and sell it today you would lose (99,980,675) from holding PacifiCorp or give up 99.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	43.33%
Values	Daily Returns

Entergy Texas  vs.  PacifiCorp

Entergy Texas

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy Texas are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Entergy Texas is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

PacifiCorp

Risk-Adjusted Performance

Good

Over the last 90 days PacifiCorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very uncertain essential indicators, PacifiCorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Entergy Texas and PacifiCorp

The main advantage of trading using opposite Entergy Texas and PacifiCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy Texas 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 Entergy Texas 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.