Correlation Between Advanced Energy and Sports Gear

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

Diversification Opportunities for Advanced Energy and Sports Gear

0.55

Correlation Coefficient

Advanced Energy  Sports Gear

Very weak diversification

The 3 months correlation between Advanced and Sports is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Solution and Sports Gear Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sports Gear 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 Sports Gear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sports Gear has no effect on the direction of Advanced Energy i.e., Advanced Energy and Sports Gear go up and down completely randomly.

Pair Corralation between Advanced Energy and Sports Gear

Assuming the 90 days trading horizon Advanced Energy Solution is expected to generate 1.67 times more return on investment than Sports Gear. However, Advanced Energy is 1.67 times more volatile than Sports Gear Co. It trades about 0.22 of its potential returns per unit of risk. Sports Gear Co is currently generating about -0.28 per unit of risk. If you would invest  96,800  in Advanced Energy Solution on October 1, 2024 and sell it today you would earn a total of  17,200  from holding Advanced Energy Solution or generate 17.77% return on investment over 90 days.

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

Advanced Energy Solution  vs.  Sports Gear Co

Advanced Energy Solution

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Solution are ranked lower than 28 (%) 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.

Sports Gear

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Advanced Energy and Sports Gear

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

The idea behind Advanced Energy Solution and Sports Gear Co 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.