Correlation Between ESS Tech and Ocean Power

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

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

Diversification Opportunities for ESS Tech and Ocean Power

-0.38

Correlation Coefficient

ESS Tech  Ocean Power

Very good diversification

The 3 months correlation between ESS and Ocean is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding ESS Tech 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 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 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 ESS Tech i.e., ESS Tech and Ocean Power go up and down completely randomly.

Pair Corralation between ESS Tech and Ocean Power

Considering the 90-day investment horizon ESS Tech is expected to generate 3451.68 times less return on investment than Ocean Power. But when comparing it to its historical volatility, ESS Tech is 4.39 times less risky than Ocean Power. It trades about 0.0 of its potential returns per unit of risk. Ocean Power Technologies is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  14.00  in Ocean Power Technologies on September 16, 2024 and sell it today you would earn a total of  20.00  from holding Ocean Power Technologies or generate 142.86% return on investment over 90 days.

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

ESS Tech  vs.  Ocean Power Technologies

ESS Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESS Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, ESS Tech is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Ocean Power Technologies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ocean Power Technologies are ranked lower than 7 (%) 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 ESS Tech and Ocean Power

The main advantage of trading using opposite ESS Tech and Ocean Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ESS Tech 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 ESS Tech 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.