Correlation Between Fuel Tech and Delta CleanTech

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

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

Diversification Opportunities for Fuel Tech and Delta CleanTech

-0.56

Correlation Coefficient

Fuel Tech  Delta CleanTech

Excellent diversification

The 3 months correlation between Fuel and Delta is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Fuel Tech and Delta CleanTech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delta CleanTech and Fuel Tech 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 Fuel Tech are associated (or correlated) with Delta CleanTech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delta CleanTech has no effect on the direction of Fuel Tech i.e., Fuel Tech and Delta CleanTech go up and down completely randomly.

Pair Corralation between Fuel Tech and Delta CleanTech

Given the investment horizon of 90 days Fuel Tech is expected to under-perform the Delta CleanTech. But the stock apears to be less risky and, when comparing its historical volatility, Fuel Tech is 11.74 times less risky than Delta CleanTech. The stock trades about -0.03 of its potential returns per unit of risk. The Delta CleanTech is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1.74  in Delta CleanTech on November 28, 2024 and sell it today you would lose (0.74) from holding Delta CleanTech or give up 42.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.08%
Values	Daily Returns

Fuel Tech  vs.  Delta CleanTech

Fuel Tech

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fuel Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Fuel Tech is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Delta CleanTech

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Delta CleanTech are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Delta CleanTech reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fuel Tech and Delta CleanTech

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

The idea behind Fuel Tech and Delta CleanTech 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.