Correlation Between Pinnacle West and Korea Electric

Can any of the company-specific risk be diversified away by investing in both Pinnacle West and Korea 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 Korea 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 Korea Electric Power, you can compare the effects of market volatilities on Pinnacle West and Korea 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 Korea Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pinnacle West and Korea Electric.

Diversification Opportunities for Pinnacle West and Korea Electric

0.62

Correlation Coefficient

Pinnacle West  Korea Electric

Poor diversification

The 3 months correlation between Pinnacle and Korea is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle West Capital and Korea Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Electric Power 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 Korea Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Electric Power has no effect on the direction of Pinnacle West i.e., Pinnacle West and Korea Electric go up and down completely randomly.

Pair Corralation between Pinnacle West and Korea Electric

Considering the 90-day investment horizon Pinnacle West Capital is expected to generate 0.53 times more return on investment than Korea Electric. However, Pinnacle West Capital is 1.88 times less risky than Korea Electric. It trades about 0.25 of its potential returns per unit of risk. Korea Electric Power is currently generating about 0.03 per unit of risk. If you would invest  8,571  in Pinnacle West Capital on September 5, 2024 and sell it today you would earn a total of  638.00  from holding Pinnacle West Capital or generate 7.44% return on investment over 90 days.

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

Pinnacle West Capital  vs.  Korea Electric Power

Pinnacle West Capital

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pinnacle West Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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.

Korea Electric Power

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Korea Electric Power are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Korea Electric is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Pinnacle West and Korea Electric

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

The idea behind Pinnacle West Capital and Korea Electric Power 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.