Correlation Between FuelCell Energy and DG Innovate

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

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

Diversification Opportunities for FuelCell Energy and DG Innovate

0.05

Correlation Coefficient

FuelCell Energy  DG Innovate

Significant diversification

The 3 months correlation between FuelCell and DGI is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding FuelCell Energy and DG Innovate PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DG Innovate PLC and FuelCell Energy 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 FuelCell Energy are associated (or correlated) with DG Innovate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DG Innovate PLC has no effect on the direction of FuelCell Energy i.e., FuelCell Energy and DG Innovate go up and down completely randomly.

Pair Corralation between FuelCell Energy and DG Innovate

Assuming the 90 days trading horizon FuelCell Energy is expected to generate 1.42 times more return on investment than DG Innovate. However, FuelCell Energy is 1.42 times more volatile than DG Innovate PLC. It trades about 0.01 of its potential returns per unit of risk. DG Innovate PLC is currently generating about 0.0 per unit of risk. If you would invest  1,268  in FuelCell Energy on September 5, 2024 and sell it today you would lose (198.00) from holding FuelCell Energy or give up 15.62% of portfolio value over 90 days.

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

FuelCell Energy  vs.  DG Innovate PLC

FuelCell Energy

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days FuelCell Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, FuelCell Energy is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

DG Innovate PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DG Innovate PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, DG Innovate is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FuelCell Energy and DG Innovate

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

The idea behind FuelCell Energy and DG Innovate PLC 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.