Correlation Between Acuity Brands and Ideal Power

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

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

Diversification Opportunities for Acuity Brands and Ideal Power

-0.44

Correlation Coefficient

Acuity Brands  Ideal Power

Very good diversification

The 3 months correlation between Acuity and Ideal is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Acuity Brands and Ideal Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ideal Power and Acuity Brands 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 Acuity Brands 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 Acuity Brands i.e., Acuity Brands and Ideal Power go up and down completely randomly.

Pair Corralation between Acuity Brands and Ideal Power

Considering the 90-day investment horizon Acuity Brands is expected to generate 2.05 times less return on investment than Ideal Power. But when comparing it to its historical volatility, Acuity Brands is 2.55 times less risky than Ideal Power. It trades about 0.25 of its potential returns per unit of risk. Ideal Power is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  637.00  in Ideal Power on October 20, 2024 and sell it today you would earn a total of  114.00  from holding Ideal Power or generate 17.9% return on investment over 90 days.

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

Acuity Brands  vs.  Ideal Power

Acuity Brands

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Acuity Brands are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Acuity Brands may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Ideal Power

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ideal Power are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ideal Power may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Acuity Brands and Ideal Power

The main advantage of trading using opposite Acuity Brands and Ideal Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Acuity Brands 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 Acuity Brands 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.