Correlation Between Pinnacle West and Hawaiian Electric

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

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

Diversification Opportunities for Pinnacle West and Hawaiian Electric

0.02

Correlation Coefficient

Pinnacle West  Hawaiian Electric

Significant diversification

The 3 months correlation between Pinnacle and Hawaiian is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle West Capital and Hawaiian Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawaiian Electric and Pinnacle West 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 Pinnacle West Capital 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 Pinnacle West i.e., Pinnacle West and Hawaiian Electric go up and down completely randomly.

Pair Corralation between Pinnacle West and Hawaiian Electric

Considering the 90-day investment horizon Pinnacle West Capital is expected to under-perform the Hawaiian Electric. But the stock apears to be less risky and, when comparing its historical volatility, Pinnacle West Capital is 1.44 times less risky than Hawaiian Electric. The stock trades about -0.43 of its potential returns per unit of risk. The Hawaiian Electric is currently generating about -0.21 of returns per unit of risk over similar time horizon. If you would invest  1,600  in Hawaiian Electric on September 23, 2024 and sell it today you would lose (99.00) from holding Hawaiian Electric or give up 6.19% of portfolio value over 90 days.

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

Pinnacle West Capital  vs.  Hawaiian Electric

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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Hawaiian Electric

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hawaiian Electric are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Hawaiian Electric is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Pinnacle West and Hawaiian Electric

The main advantage of trading using opposite Pinnacle West and Hawaiian Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pinnacle West 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 Pinnacle West Capital and Hawaiian Electric 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..