Correlation Between ESS Tech and FuelCell Energy

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

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

Diversification Opportunities for ESS Tech and FuelCell Energy

0.62

Correlation Coefficient

ESS Tech  FuelCell Energy

Poor diversification

The 3 months correlation between ESS and FuelCell is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding ESS Tech and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy and ESS 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 ESS Tech are associated (or correlated) with FuelCell Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FuelCell Energy has no effect on the direction of ESS Tech i.e., ESS Tech and FuelCell Energy go up and down completely randomly.

Pair Corralation between ESS Tech and FuelCell Energy

Considering the 90-day investment horizon ESS Tech is expected to generate 1.45 times more return on investment than FuelCell Energy. However, ESS Tech is 1.45 times more volatile than FuelCell Energy. It trades about -0.09 of its potential returns per unit of risk. FuelCell Energy is currently generating about -0.18 per unit of risk. If you would invest  614.00  in ESS Tech on December 28, 2024 and sell it today you would lose (268.00) from holding ESS Tech or give up 43.65% of portfolio value over 90 days.

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

ESS Tech  vs.  FuelCell Energy

ESS Tech

Risk-Adjusted Performance

Very Weak

Over the last 90 days ESS Tech 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 fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

FuelCell Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days FuelCell Energy 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 technical and fundamental 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 ESS Tech and FuelCell Energy

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

The idea behind ESS Tech and FuelCell Energy 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.