Correlation Between IDACORP and PPL

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

By analyzing existing cross correlation between IDACORP and PPL Corporation, you can compare the effects of market volatilities on IDACORP and PPL 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 PPL. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDACORP and PPL.

Diversification Opportunities for IDACORP and PPL

0.85

Correlation Coefficient

IDACORP  PPL

Very poor diversification

The 3 months correlation between IDACORP and PPL is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding IDACORP and PPL Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPL Corporation 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 PPL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPL Corporation has no effect on the direction of IDACORP i.e., IDACORP and PPL go up and down completely randomly.

Pair Corralation between IDACORP and PPL

Considering the 90-day investment horizon IDACORP is expected to under-perform the PPL. But the stock apears to be less risky and, when comparing its historical volatility, IDACORP is 1.32 times less risky than PPL. The stock trades about -0.23 of its potential returns per unit of risk. The PPL Corporation is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  3,346  in PPL Corporation on September 12, 2024 and sell it today you would lose (65.00) from holding PPL Corporation or give up 1.94% of portfolio value over 90 days.

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

IDACORP  vs.  PPL Corp.

IDACORP

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IDACORP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, IDACORP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PPL Corporation

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PPL Corporation are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, PPL is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with IDACORP and PPL

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

The idea behind IDACORP and PPL Corporation 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.