Correlation Between PNM Resources and Pinnacle West

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

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

Diversification Opportunities for PNM Resources and Pinnacle West

0.37

Correlation Coefficient

PNM Resources  Pinnacle West

Weak diversification

The 3 months correlation between PNM and Pinnacle is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding PNM Resources 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 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 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 PNM Resources i.e., PNM Resources and Pinnacle West go up and down completely randomly.

Pair Corralation between PNM Resources and Pinnacle West

If you would invest  4,325  in PNM Resources on September 14, 2024 and sell it today you would earn a total of  0.00  from holding PNM Resources or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	4.76%
Values	Daily Returns

PNM Resources  vs.  Pinnacle West Capital

PNM Resources

Risk-Adjusted Performance

0 of 100

Modest

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 healthy basic indicators, PNM Resources is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pinnacle West Capital

Risk-Adjusted Performance

0 of 100

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 PNM Resources and Pinnacle West

The main advantage of trading using opposite PNM Resources and Pinnacle West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PNM Resources 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 PNM Resources 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.