Correlation Between Pinnacle West and NorthWestern

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

Diversification Opportunities for Pinnacle West and NorthWestern

0.2

Correlation Coefficient

Pinnacle West  NorthWestern

Modest diversification

The 3 months correlation between Pinnacle and NorthWestern is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle West Capital and NorthWestern in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorthWestern 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 NorthWestern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorthWestern has no effect on the direction of Pinnacle West i.e., Pinnacle West and NorthWestern go up and down completely randomly.

Pair Corralation between Pinnacle West and NorthWestern

Considering the 90-day investment horizon Pinnacle West Capital is expected to generate 0.99 times more return on investment than NorthWestern. However, Pinnacle West Capital is 1.01 times less risky than NorthWestern. It trades about 0.1 of its potential returns per unit of risk. NorthWestern is currently generating about 0.07 per unit of risk. If you would invest  8,611  in Pinnacle West Capital on August 19, 2024 and sell it today you would earn a total of  577.00  from holding Pinnacle West Capital or generate 6.7% 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.  NorthWestern

Pinnacle West Capital

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pinnacle West Capital are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Pinnacle West may actually be approaching a critical reversion point that can send shares even higher in December 2024.

NorthWestern

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NorthWestern are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, NorthWestern is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Pinnacle West and NorthWestern

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

The idea behind Pinnacle West Capital and NorthWestern 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.