Correlation Between MGE Energy and Pinnacle West

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

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

Diversification Opportunities for MGE Energy and Pinnacle West

0.63

Correlation Coefficient

MGE Energy  Pinnacle West

Poor diversification

The 3 months correlation between MGE and Pinnacle is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding MGE Energy and Pinnacle West Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinnacle West Capital and MGE Energy 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 MGE Energy are associated (or correlated) with Pinnacle West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pinnacle West Capital has no effect on the direction of MGE Energy i.e., MGE Energy and Pinnacle West go up and down completely randomly.

Pair Corralation between MGE Energy and Pinnacle West

Given the investment horizon of 90 days MGE Energy is expected to generate 1.15 times less return on investment than Pinnacle West. In addition to that, MGE Energy is 1.34 times more volatile than Pinnacle West Capital. It trades about 0.25 of its total potential returns per unit of risk. Pinnacle West Capital is currently generating about 0.39 per unit of volatility. If you would invest  8,658  in Pinnacle West Capital on November 28, 2024 and sell it today you would earn a total of  560.50  from holding Pinnacle West Capital or generate 6.47% return on investment over 90 days.

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

MGE Energy  vs.  Pinnacle West Capital

MGE Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days MGE Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pinnacle West Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pinnacle West Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Pinnacle West is not utilizing all of its potentials. The newest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with MGE Energy and Pinnacle West

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

The idea behind MGE Energy and Pinnacle West Capital 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.