Correlation Between Pinnacle West and Public Service

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

Diversification Opportunities for Pinnacle West and Public Service

0.32

Correlation Coefficient

Pinnacle West  Public Service

Weak diversification

The 3 months correlation between Pinnacle and Public is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle West Capital and Public Service Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Public Service Enterprise 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 Public Service. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Public Service Enterprise has no effect on the direction of Pinnacle West i.e., Pinnacle West and Public Service go up and down completely randomly.

Pair Corralation between Pinnacle West and Public Service

Considering the 90-day investment horizon Pinnacle West is expected to generate 1.16 times less return on investment than Public Service. But when comparing it to its historical volatility, Pinnacle West Capital is 1.19 times less risky than Public Service. It trades about 0.17 of its potential returns per unit of risk. Public Service Enterprise is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  7,338  in Public Service Enterprise on August 31, 2024 and sell it today you would earn a total of  2,092  from holding Public Service Enterprise or generate 28.51% return on investment over 90 days.

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

Pinnacle West Capital  vs.  Public Service Enterprise

Pinnacle West Capital

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pinnacle West Capital are ranked lower than 9 (%) 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 December 2024.

Public Service Enterprise

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Public Service Enterprise are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Public Service reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pinnacle West and Public Service

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

The idea behind Pinnacle West Capital and Public Service Enterprise 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.