Correlation Between NewJersey Resources and PPL

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

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

Diversification Opportunities for NewJersey Resources and PPL

0.81

Correlation Coefficient

NewJersey Resources  PPL

Very poor diversification

The 3 months correlation between NewJersey and PPL is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding NewJersey Resources and PPL Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPL Corporation and NewJersey Resources 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 NewJersey Resources 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 NewJersey Resources i.e., NewJersey Resources and PPL go up and down completely randomly.

Pair Corralation between NewJersey Resources and PPL

Considering the 90-day investment horizon NewJersey Resources is expected to generate 0.99 times more return on investment than PPL. However, NewJersey Resources is 1.01 times less risky than PPL. It trades about 0.21 of its potential returns per unit of risk. PPL Corporation is currently generating about 0.12 per unit of risk. If you would invest  4,159  in NewJersey Resources on January 26, 2024 and sell it today you would earn a total of  211.00  from holding NewJersey Resources or generate 5.07% return on investment over 90 days.

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

NewJersey Resources  vs.  PPL Corp.

NewJersey Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NewJersey Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating forward-looking indicators, NewJersey Resources may actually be approaching a critical reversion point that can send shares even higher in May 2024.

PPL Corporation

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PPL Corporation are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, PPL may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with NewJersey Resources and PPL

The main advantage of trading using opposite NewJersey Resources and PPL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NewJersey Resources 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 NewJersey Resources 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.