Correlation Between First Solar and SolarEdge Technologies

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

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

Diversification Opportunities for First Solar and SolarEdge Technologies

-0.25

Correlation Coefficient

First Solar  SolarEdge Technologies

Very good diversification

The 3 months correlation between First and SolarEdge is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding First Solar and SolarEdge Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SolarEdge Technologies and First Solar 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 First Solar are associated (or correlated) with SolarEdge Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SolarEdge Technologies has no effect on the direction of First Solar i.e., First Solar and SolarEdge Technologies go up and down completely randomly.

Pair Corralation between First Solar and SolarEdge Technologies

Assuming the 90 days horizon First Solar is expected to under-perform the SolarEdge Technologies. But the stock apears to be less risky and, when comparing its historical volatility, First Solar is 2.23 times less risky than SolarEdge Technologies. The stock trades about -0.18 of its potential returns per unit of risk. The SolarEdge Technologies is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,295  in SolarEdge Technologies on December 29, 2024 and sell it today you would earn a total of  169.00  from holding SolarEdge Technologies or generate 13.05% return on investment over 90 days.

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

First Solar  vs.  SolarEdge Technologies

First Solar

Risk-Adjusted Performance

Very Weak

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

SolarEdge Technologies

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SolarEdge Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SolarEdge Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Solar and SolarEdge Technologies

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

The idea behind First Solar and SolarEdge 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.