Correlation Between Flux Power and Powell Industries

Can any of the company-specific risk be diversified away by investing in both Flux Power and Powell Industries 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 Powell Industries 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 Powell Industries, you can compare the effects of market volatilities on Flux Power and Powell Industries 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 Powell Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Flux Power and Powell Industries.

Diversification Opportunities for Flux Power and Powell Industries

0.61

Correlation Coefficient

Flux Power  Powell Industries

Poor diversification

The 3 months correlation between Flux and Powell is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Flux Power Holdings and Powell Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powell Industries 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 Powell Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powell Industries has no effect on the direction of Flux Power i.e., Flux Power and Powell Industries go up and down completely randomly.

Pair Corralation between Flux Power and Powell Industries

Given the investment horizon of 90 days Flux Power Holdings is expected to generate 1.62 times more return on investment than Powell Industries. However, Flux Power is 1.62 times more volatile than Powell Industries. It trades about 0.08 of its potential returns per unit of risk. Powell Industries is currently generating about -0.07 per unit of risk. If you would invest  168.00  in Flux Power Holdings on December 28, 2024 and sell it today you would earn a total of  35.00  from holding Flux Power Holdings or generate 20.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Flux Power Holdings  vs.  Powell Industries

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.

Powell Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Powell Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Flux Power and Powell Industries

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

The idea behind Flux Power Holdings and Powell Industries 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.