Correlation Between Public Service and PGE Corp

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

Diversification Opportunities for Public Service and PGE Corp

0.12

Correlation Coefficient

Public Service  PGE Corp

Average diversification

The 3 months correlation between Public and PGE is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Public Service Enterprise and PGE Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGE Corp 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 PGE Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGE Corp has no effect on the direction of Public Service i.e., Public Service and PGE Corp go up and down completely randomly.

Pair Corralation between Public Service and PGE Corp

Considering the 90-day investment horizon Public Service is expected to generate 1.61 times less return on investment than PGE Corp. But when comparing it to its historical volatility, Public Service Enterprise is 1.38 times less risky than PGE Corp. It trades about 0.1 of its potential returns per unit of risk. PGE Corp is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,656  in PGE Corp on January 29, 2024 and sell it today you would earn a total of  47.00  from holding PGE Corp or generate 2.84% return on investment over 90 days.

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

Public Service Enterprise  vs.  PGE Corp

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.

PGE Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PGE Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, PGE Corp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Public Service and PGE Corp

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

The idea behind Public Service Enterprise and PGE Corp 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.