Correlation Between PNM Resources and Hawaiian Electric

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

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

Diversification Opportunities for PNM Resources and Hawaiian Electric

-0.38

Correlation Coefficient

PNM Resources  Hawaiian Electric

Very good diversification

The 3 months correlation between PNM and Hawaiian is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding PNM Resources and Hawaiian Electric Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawaiian Electric and PNM Resources 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 PNM Resources are associated (or correlated) with Hawaiian Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawaiian Electric has no effect on the direction of PNM Resources i.e., PNM Resources and Hawaiian Electric go up and down completely randomly.

Pair Corralation between PNM Resources and Hawaiian Electric

Considering the 90-day investment horizon PNM Resources is expected to generate 0.25 times more return on investment than Hawaiian Electric. However, PNM Resources is 3.96 times less risky than Hawaiian Electric. It trades about 0.22 of its potential returns per unit of risk. Hawaiian Electric Industries is currently generating about -0.04 per unit of risk. If you would invest  4,138  in PNM Resources on September 3, 2024 and sell it today you would earn a total of  187.00  from holding PNM Resources or generate 4.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	39.06%
Values	Daily Returns

PNM Resources  vs.  Hawaiian Electric Industries

PNM Resources

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days PNM Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, PNM Resources may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hawaiian Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hawaiian Electric Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady 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.

Pair Trading with PNM Resources and Hawaiian Electric

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

The idea behind PNM Resources and Hawaiian Electric Industries 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.