Correlation Between Advanced Energy and Power Wind

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

Diversification Opportunities for Advanced Energy and Power Wind

-0.67

Correlation Coefficient

Advanced Energy  Power Wind

Excellent diversification

The 3 months correlation between Advanced and Power is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Solution and Power Wind Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Wind Health 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 Power Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Wind Health has no effect on the direction of Advanced Energy i.e., Advanced Energy and Power Wind go up and down completely randomly.

Pair Corralation between Advanced Energy and Power Wind

Assuming the 90 days trading horizon Advanced Energy Solution is expected to generate 2.84 times more return on investment than Power Wind. However, Advanced Energy is 2.84 times more volatile than Power Wind Health. It trades about 0.32 of its potential returns per unit of risk. Power Wind Health is currently generating about -0.14 per unit of risk. If you would invest  49,800  in Advanced Energy Solution on September 26, 2024 and sell it today you would earn a total of  48,200  from holding Advanced Energy Solution or generate 96.79% 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.  Power Wind Health

Advanced Energy Solution

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Solution are ranked lower than 25 (%) 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.

Power Wind Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Wind Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Advanced Energy and Power Wind

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

The idea behind Advanced Energy Solution and Power Wind Health 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.