Correlation Between NSTAR Electric and PNM Resources

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

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

Diversification Opportunities for NSTAR Electric and PNM Resources

-0.48

Correlation Coefficient

NSTAR Electric  PNM Resources

Very good diversification

The 3 months correlation between NSTAR and PNM is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding NSTAR Electric and PNM Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNM Resources and NSTAR Electric 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 NSTAR Electric 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 NSTAR Electric i.e., NSTAR Electric and PNM Resources go up and down completely randomly.

Pair Corralation between NSTAR Electric and PNM Resources

Assuming the 90 days horizon NSTAR Electric is expected to generate 0.54 times more return on investment than PNM Resources. However, NSTAR Electric is 1.85 times less risky than PNM Resources. It trades about 0.13 of its potential returns per unit of risk. PNM Resources is currently generating about -0.04 per unit of risk. If you would invest  6,900  in NSTAR Electric on March 29, 2024 and sell it today you would earn a total of  150.00  from holding NSTAR Electric or generate 2.17% return on investment over 90 days.

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

NSTAR Electric  vs.  PNM Resources

NSTAR Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NSTAR Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, NSTAR Electric is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

PNM Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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 NSTAR Electric and PNM Resources

The main advantage of trading using opposite NSTAR Electric and PNM Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NSTAR Electric 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 NSTAR Electric 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.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.