Correlation Between PPL and IDACORP

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

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

Diversification Opportunities for PPL and IDACORP

0.84

Correlation Coefficient

PPL  IDACORP

Very poor diversification

The 3 months correlation between PPL and IDACORP is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding PPL Corp. and IDACORP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDACORP and PPL 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 PPL Corporation are associated (or correlated) with IDACORP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDACORP has no effect on the direction of PPL i.e., PPL and IDACORP go up and down completely randomly.

Pair Corralation between PPL and IDACORP

Considering the 90-day investment horizon PPL is expected to generate 1.38 times less return on investment than IDACORP. But when comparing it to its historical volatility, PPL Corporation is 1.22 times less risky than IDACORP. It trades about 0.31 of its potential returns per unit of risk. IDACORP is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  10,608  in IDACORP on September 5, 2024 and sell it today you would earn a total of  1,010  from holding IDACORP or generate 9.52% return on investment over 90 days.

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

PPL Corp.  vs.  IDACORP

PPL Corporation

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PPL Corporation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, PPL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

IDACORP

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IDACORP are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, IDACORP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PPL and IDACORP

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

The idea behind PPL Corporation and IDACORP 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.