Correlation Between Advanced Energy and Advanced Lithium

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

Diversification Opportunities for Advanced Energy and Advanced Lithium

0.41

Correlation Coefficient

Advanced Energy  Advanced Lithium

Very weak diversification

The 3 months correlation between Advanced and Advanced is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Solution and Advanced Lithium Electrochemis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Lithium Ele 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 Advanced Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Lithium Ele has no effect on the direction of Advanced Energy i.e., Advanced Energy and Advanced Lithium go up and down completely randomly.

Pair Corralation between Advanced Energy and Advanced Lithium

Assuming the 90 days trading horizon Advanced Energy Solution is expected to generate 1.93 times more return on investment than Advanced Lithium. However, Advanced Energy is 1.93 times more volatile than Advanced Lithium Electrochemistry. It trades about -0.06 of its potential returns per unit of risk. Advanced Lithium Electrochemistry is currently generating about -0.28 per unit of risk. If you would invest  112,500  in Advanced Energy Solution on December 30, 2024 and sell it today you would lose (20,000) from holding Advanced Energy Solution or give up 17.78% of portfolio value over 90 days.

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

Advanced Energy Solution  vs.  Advanced Lithium Electrochemis

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.

Advanced Lithium Ele

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advanced Lithium Electrochemistry 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 Advanced Energy and Advanced Lithium

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

The idea behind Advanced Energy Solution and Advanced Lithium Electrochemistry 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.