Correlation Between Clean Carbon and ADX

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

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

Diversification Opportunities for Clean Carbon and ADX

-0.17

Correlation Coefficient

Clean Carbon  ADX

Good diversification

The 3 months correlation between Clean and ADX is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Clean Carbon Energy and ADX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADX and Clean Carbon 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 Clean Carbon Energy are associated (or correlated) with ADX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADX has no effect on the direction of Clean Carbon i.e., Clean Carbon and ADX go up and down completely randomly.

Pair Corralation between Clean Carbon and ADX

Assuming the 90 days trading horizon Clean Carbon Energy is expected to generate 1.71 times more return on investment than ADX. However, Clean Carbon is 1.71 times more volatile than ADX. It trades about 0.11 of its potential returns per unit of risk. ADX is currently generating about -0.01 per unit of risk. If you would invest  28.00  in Clean Carbon Energy on November 20, 2024 and sell it today you would earn a total of  10.00  from holding Clean Carbon Energy or generate 35.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.66%
Values	Daily Returns

Clean Carbon Energy  vs.  ADX

Clean Carbon Energy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Clean Carbon Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Clean Carbon reported solid returns over the last few months and may actually be approaching a breakup point.

ADX

Risk-Adjusted Performance

Very Weak

Over the last 90 days ADX has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, ADX is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Clean Carbon and ADX

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

The idea behind Clean Carbon Energy and ADX 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.