Correlation Between Euro Tech and Energy

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

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

Diversification Opportunities for Euro Tech and Energy

0.28

Correlation Coefficient

Euro Tech  Energy

Modest diversification

The 3 months correlation between Euro and Energy is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Euro Tech Holdings and Energy and Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy and Water and Euro Tech 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 Euro Tech Holdings are associated (or correlated) with Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy and Water has no effect on the direction of Euro Tech i.e., Euro Tech and Energy go up and down completely randomly.

Pair Corralation between Euro Tech and Energy

Given the investment horizon of 90 days Euro Tech Holdings is expected to under-perform the Energy. But the stock apears to be less risky and, when comparing its historical volatility, Euro Tech Holdings is 4.67 times less risky than Energy. The stock trades about -0.06 of its potential returns per unit of risk. The Energy and Water is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  0.38  in Energy and Water on December 27, 2024 and sell it today you would lose (0.18) from holding Energy and Water or give up 47.37% of portfolio value over 90 days.

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

Euro Tech Holdings  vs.  Energy and Water

Euro Tech Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Euro Tech Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Energy and Water

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Euro Tech and Energy

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

The idea behind Euro Tech Holdings and Energy and Water 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.