Correlation Between Pinnacle West and PNM Resources

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

Diversification Opportunities for Pinnacle West and PNM Resources

0.37

Correlation Coefficient

Pinnacle West  PNM Resources

Weak diversification

The 3 months correlation between Pinnacle and PNM is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle West Capital and PNM Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNM Resources 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 PNM Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PNM Resources has no effect on the direction of Pinnacle West i.e., Pinnacle West and PNM Resources go up and down completely randomly.

Pair Corralation between Pinnacle West and PNM Resources

Considering the 90-day investment horizon Pinnacle West Capital is expected to under-perform the PNM Resources. In addition to that, Pinnacle West is 2.2 times more volatile than PNM Resources. It trades about -0.02 of its total potential returns per unit of risk. PNM Resources is currently generating about 0.07 per unit of volatility. If you would invest  4,301  in PNM Resources on September 14, 2024 and sell it today you would earn a total of  24.00  from holding PNM Resources or generate 0.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	25.4%
Values	Daily Returns

Pinnacle West Capital  vs.  PNM Resources

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.

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.

Pair Trading with Pinnacle West and PNM Resources

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

The idea behind Pinnacle West Capital and PNM Resources 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.