Correlation Between Advanced Energy and RichWave Technology

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

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

Diversification Opportunities for Advanced Energy and RichWave Technology

0.65

Correlation Coefficient

Advanced Energy  RichWave Technology

Poor diversification

The 3 months correlation between Advanced and RichWave is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Solution and RichWave Technology Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RichWave Technology Corp and Advanced 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 Advanced Energy Solution are associated (or correlated) with RichWave Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RichWave Technology Corp has no effect on the direction of Advanced Energy i.e., Advanced Energy and RichWave Technology go up and down completely randomly.

Pair Corralation between Advanced Energy and RichWave Technology

Assuming the 90 days trading horizon Advanced Energy Solution is expected to generate 1.21 times more return on investment than RichWave Technology. However, Advanced Energy is 1.21 times more volatile than RichWave Technology Corp. It trades about 0.29 of its potential returns per unit of risk. RichWave Technology Corp is currently generating about 0.03 per unit of risk. If you would invest  54,500  in Advanced Energy Solution on October 22, 2024 and sell it today you would earn a total of  57,000  from holding Advanced Energy Solution or generate 104.59% return on investment over 90 days.

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

Advanced Energy Solution  vs.  RichWave Technology Corp

Advanced Energy Solution

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Solution are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Advanced Energy showed solid returns over the last few months and may actually be approaching a breakup point.

RichWave Technology Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RichWave Technology Corp are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, RichWave Technology is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Advanced Energy and RichWave Technology

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

The idea behind Advanced Energy Solution and RichWave Technology 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.