Correlation Between AFC Energy and Ideal Power

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

By analyzing existing cross correlation between AFC Energy plc and Ideal Power, you can compare the effects of market volatilities on AFC Energy and Ideal Power 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 AFC Energy with a short position of Ideal Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of AFC Energy and Ideal Power.

Diversification Opportunities for AFC Energy and Ideal Power

-0.16

Correlation Coefficient

AFC Energy  Ideal Power

Good diversification

The 3 months correlation between AFC and Ideal is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding AFC Energy plc and Ideal Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ideal Power and AFC 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 AFC Energy plc are associated (or correlated) with Ideal Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ideal Power has no effect on the direction of AFC Energy i.e., AFC Energy and Ideal Power go up and down completely randomly.

Pair Corralation between AFC Energy and Ideal Power

Assuming the 90 days horizon AFC Energy plc is expected to under-perform the Ideal Power. In addition to that, AFC Energy is 1.2 times more volatile than Ideal Power. It trades about -0.1 of its total potential returns per unit of risk. Ideal Power is currently generating about 0.37 per unit of volatility. If you would invest  616.00  in Ideal Power on October 8, 2024 and sell it today you would earn a total of  242.00  from holding Ideal Power or generate 39.29% return on investment over 90 days.

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

AFC Energy plc  vs.  Ideal Power

AFC Energy plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AFC Energy plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, AFC Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Ideal Power

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ideal Power are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ideal Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AFC Energy and Ideal Power

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

The idea behind AFC Energy plc and Ideal Power 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.