Correlation Between Portland General and PNM Resources

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

By analyzing existing cross correlation between Portland General Electric and PNM Resources, you can compare the effects of market volatilities on Portland General and PNM Resources 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 Portland General with a short position of PNM Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Portland General and PNM Resources.

Diversification Opportunities for Portland General and PNM Resources

-0.14

Correlation Coefficient

Portland General  PNM Resources

Good diversification

The 3 months correlation between Portland and PNM is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Portland General Electric and PNM Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PNM Resources and Portland General 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 Portland General Electric are associated (or correlated) with PNM Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PNM Resources has no effect on the direction of Portland General i.e., Portland General and PNM Resources go up and down completely randomly.

Pair Corralation between Portland General and PNM Resources

Considering the 90-day investment horizon Portland General is expected to generate 27.27 times less return on investment than PNM Resources. In addition to that, Portland General is 1.25 times more volatile than PNM Resources. It trades about 0.01 of its total potential returns per unit of risk. PNM Resources is currently generating about 0.22 per unit of volatility. If you would invest  4,138  in PNM Resources on August 31, 2024 and sell it today you would earn a total of  187.00  from holding PNM Resources or generate 4.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	39.68%
Values	Daily Returns

Portland General Electric  vs.  PNM Resources

Portland General Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Portland General Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Portland General is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

PNM Resources

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days PNM Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak basic indicators, PNM Resources may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Portland General and PNM Resources

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

The idea behind Portland General Electric and PNM Resources 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.