Correlation Between Advanced Energy and Wafer Works

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

Diversification Opportunities for Advanced Energy and Wafer Works

-0.65

Correlation Coefficient

Advanced Energy  Wafer Works

Excellent diversification

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

Pair Corralation between Advanced Energy and Wafer Works

Assuming the 90 days trading horizon Advanced Energy Solution is expected to generate 1.72 times more return on investment than Wafer Works. However, Advanced Energy is 1.72 times more volatile than Wafer Works. It trades about 0.3 of its potential returns per unit of risk. Wafer Works is currently generating about -0.09 per unit of risk. If you would invest  53,500  in Advanced Energy Solution on October 8, 2024 and sell it today you would earn a total of  52,500  from holding Advanced Energy Solution or generate 98.13% return on investment over 90 days.

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

Advanced Energy Solution  vs.  Wafer Works

Advanced Energy Solution

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Solution are ranked lower than 23 (%) 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.

Wafer Works

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wafer Works 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 February 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 Wafer Works

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

The idea behind Advanced Energy Solution and Wafer Works 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..