Correlation Between Energy and Eguana Technologies

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

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

Diversification Opportunities for Energy and Eguana Technologies

0.22

Correlation Coefficient

Energy  Eguana Technologies

Modest diversification

The 3 months correlation between Energy and Eguana is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Energy and Water and Eguana Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eguana Technologies and Energy 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 Energy and Water are associated (or correlated) with Eguana Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eguana Technologies has no effect on the direction of Energy i.e., Energy and Eguana Technologies go up and down completely randomly.

Pair Corralation between Energy and Eguana Technologies

Given the investment horizon of 90 days Energy is expected to generate 10.79 times less return on investment than Eguana Technologies. But when comparing it to its historical volatility, Energy and Water is 1.37 times less risky than Eguana Technologies. It trades about 0.01 of its potential returns per unit of risk. Eguana Technologies is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1.00  in Eguana Technologies on December 29, 2024 and sell it today you would lose (0.15) from holding Eguana Technologies or give up 15.0% of portfolio value over 90 days.

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

Energy and Water  vs.  Eguana Technologies

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 fragile basic indicators, Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Eguana Technologies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eguana Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Eguana Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energy and Eguana Technologies

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

The idea behind Energy and Water and Eguana 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.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.