Correlation Between Advanced Energy and NVent Electric

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

Diversification Opportunities for Advanced Energy and NVent Electric

0.76

Correlation Coefficient

Advanced Energy  NVent Electric

Poor diversification

The 3 months correlation between Advanced and NVent is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Industries and nVent Electric PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nVent Electric PLC 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 NVent Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nVent Electric PLC has no effect on the direction of Advanced Energy i.e., Advanced Energy and NVent Electric go up and down completely randomly.

Pair Corralation between Advanced Energy and NVent Electric

Given the investment horizon of 90 days Advanced Energy Industries is expected to generate 1.08 times more return on investment than NVent Electric. However, Advanced Energy is 1.08 times more volatile than nVent Electric PLC. It trades about -0.08 of its potential returns per unit of risk. nVent Electric PLC is currently generating about -0.12 per unit of risk. If you would invest  11,494  in Advanced Energy Industries on December 29, 2024 and sell it today you would lose (2,014) from holding Advanced Energy Industries or give up 17.52% of portfolio value over 90 days.

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

Advanced Energy Industries  vs.  nVent Electric PLC

Advanced Energy Indu

Risk-Adjusted Performance

Very Weak

Over the last 90 days Advanced Energy Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

nVent Electric PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days nVent Electric PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Advanced Energy and NVent Electric

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

The idea behind Advanced Energy Industries and nVent Electric PLC 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..