Correlation Between Pinnacle West and CVR Energy

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

Diversification Opportunities for Pinnacle West and CVR Energy

-0.44

Correlation Coefficient

Pinnacle West  CVR Energy

Very good diversification

The 3 months correlation between Pinnacle and CVR is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle West Capital and CVR Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVR Energy 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 CVR Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVR Energy has no effect on the direction of Pinnacle West i.e., Pinnacle West and CVR Energy go up and down completely randomly.

Pair Corralation between Pinnacle West and CVR Energy

Assuming the 90 days trading horizon Pinnacle West Capital is expected to generate 0.28 times more return on investment than CVR Energy. However, Pinnacle West Capital is 3.59 times less risky than CVR Energy. It trades about 0.1 of its potential returns per unit of risk. CVR Energy is currently generating about -0.06 per unit of risk. If you would invest  8,759  in Pinnacle West Capital on September 2, 2024 and sell it today you would earn a total of  644.00  from holding Pinnacle West Capital or generate 7.35% return on investment over 90 days.

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

Pinnacle West Capital  vs.  CVR Energy

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 comparatively uncertain basic indicators, Pinnacle West may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CVR Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVR Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Pinnacle West and CVR Energy

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

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