Correlation Between Flux Power and Ocean Power

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

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

Diversification Opportunities for Flux Power and Ocean Power

0.42

Correlation Coefficient

Flux Power  Ocean Power

Very weak diversification

The 3 months correlation between Flux and Ocean is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Flux Power Holdings and Ocean Power Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ocean Power Technologies and Flux Power 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 Flux Power Holdings are associated (or correlated) with Ocean Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ocean Power Technologies has no effect on the direction of Flux Power i.e., Flux Power and Ocean Power go up and down completely randomly.

Pair Corralation between Flux Power and Ocean Power

Given the investment horizon of 90 days Flux Power is expected to generate 1.82 times less return on investment than Ocean Power. But when comparing it to its historical volatility, Flux Power Holdings is 2.23 times less risky than Ocean Power. It trades about 0.08 of its potential returns per unit of risk. Ocean Power Technologies is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  48.00  in Ocean Power Technologies on December 27, 2024 and sell it today you would earn a total of  0.00  from holding Ocean Power Technologies or generate 0.0% return on investment over 90 days.

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

Flux Power Holdings  vs.  Ocean Power Technologies

Flux Power Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Flux Power Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Flux Power showed solid returns over the last few months and may actually be approaching a breakup point.

Ocean Power Technologies

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ocean Power Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Ocean Power unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Flux Power and Ocean Power

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

The idea behind Flux Power Holdings and Ocean Power 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.