Correlation Between Delta CleanTech and Energy Recovery

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

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

Diversification Opportunities for Delta CleanTech and Energy Recovery

0.26

Correlation Coefficient

Delta CleanTech  Energy Recovery

Modest diversification

The 3 months correlation between Delta and Energy is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Delta CleanTech and Energy Recovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Recovery and Delta CleanTech 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 Delta CleanTech are associated (or correlated) with Energy Recovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Recovery has no effect on the direction of Delta CleanTech i.e., Delta CleanTech and Energy Recovery go up and down completely randomly.

Pair Corralation between Delta CleanTech and Energy Recovery

Assuming the 90 days horizon Delta CleanTech is expected to generate 21.43 times more return on investment than Energy Recovery. However, Delta CleanTech is 21.43 times more volatile than Energy Recovery. It trades about 0.15 of its potential returns per unit of risk. Energy Recovery is currently generating about 0.09 per unit of risk. If you would invest  2.25  in Delta CleanTech on December 29, 2024 and sell it today you would earn a total of  1.11  from holding Delta CleanTech or generate 49.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Delta CleanTech  vs.  Energy Recovery

Delta CleanTech

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Delta CleanTech are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Delta CleanTech reported solid returns over the last few months and may actually be approaching a breakup point.

Energy Recovery

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Recovery are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain forward indicators, Energy Recovery may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Delta CleanTech and Energy Recovery

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

The idea behind Delta CleanTech and Energy Recovery 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.