Correlation Between Advanced Energy and Encore Wire

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

Diversification Opportunities for Advanced Energy and Encore Wire

0.63

Correlation Coefficient

Advanced Energy  Encore Wire

Poor diversification

The 3 months correlation between Advanced and Encore is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Industries and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire 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 Encore Wire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encore Wire has no effect on the direction of Advanced Energy i.e., Advanced Energy and Encore Wire go up and down completely randomly.

Pair Corralation between Advanced Energy and Encore Wire

If you would invest  9,875  in Advanced Energy Industries on September 3, 2024 and sell it today you would earn a total of  1,629  from holding Advanced Energy Industries or generate 16.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	1.56%
Values	Daily Returns

Advanced Energy Industries  vs.  Encore Wire

Advanced Energy Indu

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Advanced Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Encore Wire

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Encore Wire has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Encore Wire is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Advanced Energy and Encore Wire

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

The idea behind Advanced Energy Industries and Encore Wire 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.