Correlation Between Energy Income and Sustainable Innovation

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

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

Diversification Opportunities for Energy Income and Sustainable Innovation

-0.32

Correlation Coefficient

Energy Income  Sustainable Innovation

Very good diversification

The 3 months correlation between Energy and Sustainable is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Energy Income and Sustainable Innovation Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sustainable Innovation and Energy Income 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 Income are associated (or correlated) with Sustainable Innovation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sustainable Innovation has no effect on the direction of Energy Income i.e., Energy Income and Sustainable Innovation go up and down completely randomly.

Pair Corralation between Energy Income and Sustainable Innovation

Assuming the 90 days trading horizon Energy Income is expected to generate 1.99 times more return on investment than Sustainable Innovation. However, Energy Income is 1.99 times more volatile than Sustainable Innovation Health. It trades about 0.09 of its potential returns per unit of risk. Sustainable Innovation Health is currently generating about -0.05 per unit of risk. If you would invest  150.00  in Energy Income on December 25, 2024 and sell it today you would earn a total of  20.00  from holding Energy Income or generate 13.33% return on investment over 90 days.

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

Energy Income  vs.  Sustainable Innovation Health

Energy Income

Risk-Adjusted Performance

OK

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

Sustainable Innovation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sustainable Innovation Health has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong technical indicators, Sustainable Innovation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Energy Income and Sustainable Innovation

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

The idea behind Energy Income and Sustainable Innovation Health 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.