Correlation Between Public Service and Pinnacle West

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

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

Diversification Opportunities for Public Service and Pinnacle West

-0.56

Correlation Coefficient

Public Service  Pinnacle West

Excellent diversification

The 3 months correlation between Public and Pinnacle is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Public Service Enterprise 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 Public Service 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 Public Service Enterprise 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 Public Service i.e., Public Service and Pinnacle West go up and down completely randomly.

Pair Corralation between Public Service and Pinnacle West

Considering the 90-day investment horizon Public Service Enterprise is expected to under-perform the Pinnacle West. In addition to that, Public Service is 1.32 times more volatile than Pinnacle West Capital. It trades about -0.02 of its total potential returns per unit of risk. Pinnacle West Capital is currently generating about 0.17 per unit of volatility. If you would invest  8,393  in Pinnacle West Capital on December 28, 2024 and sell it today you would earn a total of  1,024  from holding Pinnacle West Capital or generate 12.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Public Service Enterprise  vs.  Pinnacle West Capital

Public Service Enterprise

Risk-Adjusted Performance

Very Weak

Over the last 90 days Public Service Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Public Service is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pinnacle West Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pinnacle West Capital are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Pinnacle West may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Public Service and Pinnacle West

The main advantage of trading using opposite Public Service and Pinnacle West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Public Service 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 Public Service Enterprise 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.