Correlation Between Allis Electric and Advanced Energy

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

By analyzing existing cross correlation between Allis Electric Co and Advanced Energy Solution, you can compare the effects of market volatilities on Allis Electric and Advanced 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 Allis Electric with a short position of Advanced Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allis Electric and Advanced Energy.

Diversification Opportunities for Allis Electric and Advanced Energy

-0.53

Correlation Coefficient

Allis Electric  Advanced Energy

Excellent diversification

The 3 months correlation between Allis and Advanced is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Allis Electric Co and Advanced Energy Solution in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Energy Solution and Allis Electric 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 Allis Electric Co are associated (or correlated) with Advanced Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Energy Solution has no effect on the direction of Allis Electric i.e., Allis Electric and Advanced Energy go up and down completely randomly.

Pair Corralation between Allis Electric and Advanced Energy

Assuming the 90 days trading horizon Allis Electric Co is expected to generate 0.62 times more return on investment than Advanced Energy. However, Allis Electric Co is 1.62 times less risky than Advanced Energy. It trades about 0.09 of its potential returns per unit of risk. Advanced Energy Solution is currently generating about -0.06 per unit of risk. If you would invest  10,000  in Allis Electric Co on December 30, 2024 and sell it today you would earn a total of  1,150  from holding Allis Electric Co or generate 11.5% return on investment over 90 days.

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

Allis Electric Co  vs.  Advanced Energy Solution

Allis Electric

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Allis Electric Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Allis Electric showed solid returns over the last few months and may actually be approaching a breakup point.

Advanced Energy Solution

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advanced Energy Solution has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Allis Electric and Advanced Energy

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

The idea behind Allis Electric Co and Advanced Energy Solution 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 Transaction History module to view history of all your transactions and understand their impact on performance.