Correlation Between Espey Mfg and AFC Energy

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

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

Diversification Opportunities for Espey Mfg and AFC Energy

-0.81

Correlation Coefficient

Espey Mfg  AFC Energy

Pay attention - limited upside

The 3 months correlation between Espey and AFC is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Espey Mfg Electronics and AFC Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AFC Energy plc and Espey Mfg 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 Espey Mfg Electronics are associated (or correlated) with AFC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AFC Energy plc has no effect on the direction of Espey Mfg i.e., Espey Mfg and AFC Energy go up and down completely randomly.

Pair Corralation between Espey Mfg and AFC Energy

Considering the 90-day investment horizon Espey Mfg Electronics is expected to generate 0.57 times more return on investment than AFC Energy. However, Espey Mfg Electronics is 1.74 times less risky than AFC Energy. It trades about 0.14 of its potential returns per unit of risk. AFC Energy plc is currently generating about -0.05 per unit of risk. If you would invest  2,285  in Espey Mfg Electronics on September 3, 2024 and sell it today you would earn a total of  733.00  from holding Espey Mfg Electronics or generate 32.08% return on investment over 90 days.

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

Espey Mfg Electronics  vs.  AFC Energy plc

Espey Mfg Electronics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Espey Mfg Electronics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Espey Mfg reported solid returns over the last few months and may actually be approaching a breakup point.

AFC Energy plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AFC Energy plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Espey Mfg and AFC Energy

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

The idea behind Espey Mfg Electronics and AFC Energy plc 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..