Correlation Between IDACORP and Xcel Energy

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

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

Diversification Opportunities for IDACORP and Xcel Energy

0.87

Correlation Coefficient

IDACORP  Xcel Energy

Very poor diversification

The 3 months correlation between IDACORP and Xcel is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding IDACORP and Xcel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel Energy and IDACORP 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 IDACORP are associated (or correlated) with Xcel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Energy has no effect on the direction of IDACORP i.e., IDACORP and Xcel Energy go up and down completely randomly.

Pair Corralation between IDACORP and Xcel Energy

Considering the 90-day investment horizon IDACORP is expected to generate 0.84 times more return on investment than Xcel Energy. However, IDACORP is 1.19 times less risky than Xcel Energy. It trades about 0.45 of its potential returns per unit of risk. Xcel Energy is currently generating about 0.3 per unit of risk. If you would invest  10,414  in IDACORP on August 24, 2024 and sell it today you would earn a total of  1,466  from holding IDACORP or generate 14.08% return on investment over 90 days.

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

IDACORP  vs.  Xcel Energy

IDACORP

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IDACORP are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, IDACORP sustained solid returns over the last few months and may actually be approaching a breakup point.

Xcel Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xcel Energy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Xcel Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IDACORP and Xcel Energy

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

The idea behind IDACORP and Xcel Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.