Correlation Between Energy Recovery and ClearSign Combustion

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

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

Diversification Opportunities for Energy Recovery and ClearSign Combustion

-0.7

Correlation Coefficient

Energy Recovery  ClearSign Combustion

Excellent diversification

The 3 months correlation between Energy and ClearSign is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Energy Recovery and ClearSign Combustion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ClearSign Combustion and Energy Recovery 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 Recovery are associated (or correlated) with ClearSign Combustion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ClearSign Combustion has no effect on the direction of Energy Recovery i.e., Energy Recovery and ClearSign Combustion go up and down completely randomly.

Pair Corralation between Energy Recovery and ClearSign Combustion

Given the investment horizon of 90 days Energy Recovery is expected to under-perform the ClearSign Combustion. But the stock apears to be less risky and, when comparing its historical volatility, Energy Recovery is 1.64 times less risky than ClearSign Combustion. The stock trades about -0.01 of its potential returns per unit of risk. The ClearSign Combustion is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  102.00  in ClearSign Combustion on October 3, 2024 and sell it today you would earn a total of  42.00  from holding ClearSign Combustion or generate 41.18% return on investment over 90 days.

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

Energy Recovery  vs.  ClearSign Combustion

Energy Recovery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Recovery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

ClearSign Combustion

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ClearSign Combustion are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward indicators, ClearSign Combustion reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energy Recovery and ClearSign Combustion

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

The idea behind Energy Recovery and ClearSign Combustion 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.