Correlation Between Consumers Energy and Pinnacle West

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

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

Diversification Opportunities for Consumers Energy and Pinnacle West

0.28

Correlation Coefficient

Consumers Energy  Pinnacle West

Modest diversification

The 3 months correlation between Consumers and Pinnacle is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Consumers Energy and Pinnacle West Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pinnacle West Capital and Consumers Energy 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 Consumers Energy are associated (or correlated) with Pinnacle West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pinnacle West Capital has no effect on the direction of Consumers Energy i.e., Consumers Energy and Pinnacle West go up and down completely randomly.

Pair Corralation between Consumers Energy and Pinnacle West

Assuming the 90 days trading horizon Consumers Energy is expected to under-perform the Pinnacle West. But the preferred stock apears to be less risky and, when comparing its historical volatility, Consumers Energy is 2.68 times less risky than Pinnacle West. The preferred stock trades about -0.16 of its potential returns per unit of risk. The Pinnacle West Capital is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  7,317  in Pinnacle West Capital on February 2, 2024 and sell it today you would earn a total of  197.00  from holding Pinnacle West Capital or generate 2.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Consumers Energy  vs.  Pinnacle West Capital

Consumers Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumers Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Consumers Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pinnacle West Capital

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pinnacle West Capital are ranked lower than 10 (%) 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 June 2024.

Pair Trading with Consumers Energy and Pinnacle West

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

The idea behind Consumers Energy and Pinnacle West Capital 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.