Correlation Between Public Service and PBF Energy

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

By analyzing existing cross correlation between Public Service Enterprise and PBF Energy, you can compare the effects of market volatilities on Public Service and PBF 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 Public Service with a short position of PBF Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Public Service and PBF Energy.

Diversification Opportunities for Public Service and PBF Energy

0.76

Correlation Coefficient

Public Service  PBF Energy

Poor diversification

The 3 months correlation between Public and PBF is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Public Service Enterprise and PBF Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PBF Energy and Public Service 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 Public Service Enterprise are associated (or correlated) with PBF Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PBF Energy has no effect on the direction of Public Service i.e., Public Service and PBF Energy go up and down completely randomly.

Pair Corralation between Public Service and PBF Energy

Considering the 90-day investment horizon Public Service is expected to generate 1.13 times less return on investment than PBF Energy. But when comparing it to its historical volatility, Public Service Enterprise is 2.34 times less risky than PBF Energy. It trades about 0.25 of its potential returns per unit of risk. PBF Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,829  in PBF Energy on January 26, 2024 and sell it today you would earn a total of  889.00  from holding PBF Energy or generate 18.41% return on investment over 90 days.

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

Public Service Enterprise  vs.  PBF Energy

Public Service Enterprise

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Public Service Enterprise are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Public Service reported solid returns over the last few months and may actually be approaching a breakup point.

PBF Energy

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PBF Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting fundamental drivers, PBF Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Public Service and PBF Energy

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

The idea behind Public Service Enterprise and PBF 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.