Correlation Between PNM Resources and Portland General

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

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

Diversification Opportunities for PNM Resources and Portland General

0.21

Correlation Coefficient

PNM Resources  Portland General

Modest diversification

The 3 months correlation between PNM and Portland is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding PNM Resources and Portland General Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Portland General Electric and PNM 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 PNM Resources are associated (or correlated) with Portland General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Portland General Electric has no effect on the direction of PNM Resources i.e., PNM Resources and Portland General go up and down completely randomly.

Pair Corralation between PNM Resources and Portland General

Considering the 90-day investment horizon PNM Resources is expected to under-perform the Portland General. But the stock apears to be less risky and, when comparing its historical volatility, PNM Resources is 1.67 times less risky than Portland General. The stock trades about -0.03 of its potential returns per unit of risk. The Portland General Electric is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,338  in Portland General Electric on February 4, 2024 and sell it today you would earn a total of  39.00  from holding Portland General Electric or generate 0.9% return on investment over 90 days.

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

PNM Resources  vs.  Portland General Electric

PNM Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PNM Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, PNM Resources may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Portland General Electric

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Portland General Electric are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Portland General may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with PNM Resources and Portland General

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

The idea behind PNM Resources and Portland General Electric 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.