Correlation Between American Security and Ormat Technologies

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

By analyzing existing cross correlation between American Security Resources and Ormat Technologies, you can compare the effects of market volatilities on American Security and Ormat Technologies 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 American Security with a short position of Ormat Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Security and Ormat Technologies.

Diversification Opportunities for American Security and Ormat Technologies

0.27

Correlation Coefficient

American Security  Ormat Technologies

Modest diversification

The 3 months correlation between American and Ormat is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding American Security Resources and Ormat Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ormat Technologies and American Security 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 American Security Resources are associated (or correlated) with Ormat Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ormat Technologies has no effect on the direction of American Security i.e., American Security and Ormat Technologies go up and down completely randomly.

Pair Corralation between American Security and Ormat Technologies

Given the investment horizon of 90 days American Security Resources is expected to generate 15.45 times more return on investment than Ormat Technologies. However, American Security is 15.45 times more volatile than Ormat Technologies. It trades about 0.1 of its potential returns per unit of risk. Ormat Technologies is currently generating about 0.04 per unit of risk. If you would invest  0.01  in American Security Resources on December 28, 2024 and sell it today you would lose  0.00  from holding American Security Resources or give up 0.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

American Security Resources  vs.  Ormat Technologies

American Security

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Security Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, American Security exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ormat Technologies

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ormat Technologies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Ormat Technologies is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Security and Ormat Technologies

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

The idea behind American Security Resources and Ormat Technologies 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.