Correlation Between Advanced Energy and Ambarella

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

By analyzing existing cross correlation between Advanced Energy Industries and Ambarella, you can compare the effects of market volatilities on Advanced Energy and Ambarella 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 Ambarella. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Energy and Ambarella.

Diversification Opportunities for Advanced Energy and Ambarella

0.82

Correlation Coefficient

Advanced Energy  Ambarella

Very poor diversification

The 3 months correlation between Advanced and Ambarella is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Industries and Ambarella in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambarella 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 Industries are associated (or correlated) with Ambarella. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambarella has no effect on the direction of Advanced Energy i.e., Advanced Energy and Ambarella go up and down completely randomly.

Pair Corralation between Advanced Energy and Ambarella

Given the investment horizon of 90 days Advanced Energy is expected to generate 2.38 times less return on investment than Ambarella. But when comparing it to its historical volatility, Advanced Energy Industries is 1.32 times less risky than Ambarella. It trades about 0.07 of its potential returns per unit of risk. Ambarella is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,970  in Ambarella on August 30, 2024 and sell it today you would earn a total of  1,274  from holding Ambarella or generate 21.34% return on investment over 90 days.

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

Advanced Energy Industries  vs.  Ambarella

Advanced Energy Indu

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Advanced Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Ambarella

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ambarella are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental drivers, Ambarella sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Energy and Ambarella

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

The idea behind Advanced Energy Industries and Ambarella 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.