Correlation Between Pinnacle West and Centrais Eltricas

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

Diversification Opportunities for Pinnacle West and Centrais Eltricas

-0.34

Correlation Coefficient

Pinnacle West  Centrais Eltricas

Very good diversification

The 3 months correlation between Pinnacle and Centrais is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle West Capital and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Eltricas 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 Centrais Eltricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Eltricas has no effect on the direction of Pinnacle West i.e., Pinnacle West and Centrais Eltricas go up and down completely randomly.

Pair Corralation between Pinnacle West and Centrais Eltricas

Considering the 90-day investment horizon Pinnacle West Capital is expected to generate 0.49 times more return on investment than Centrais Eltricas. However, Pinnacle West Capital is 2.05 times less risky than Centrais Eltricas. It trades about 0.05 of its potential returns per unit of risk. Centrais Eltricas Brasileiras is currently generating about -0.05 per unit of risk. If you would invest  8,086  in Pinnacle West Capital on September 21, 2024 and sell it today you would earn a total of  467.00  from holding Pinnacle West Capital or generate 5.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.07%
Values	Daily Returns

Pinnacle West Capital  vs.  Centrais Eltricas Brasileiras

Pinnacle West Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pinnacle West Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Pinnacle West is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Centrais Eltricas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centrais Eltricas Brasileiras has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Pinnacle West and Centrais Eltricas

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

The idea behind Pinnacle West Capital and Centrais Eltricas Brasileiras 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.