Correlation Between ESS Tech and Plug Power

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

Diversification Opportunities for ESS Tech and Plug Power

0.68

Correlation Coefficient

ESS Tech  Plug Power

Poor diversification

The 3 months correlation between ESS and Plug is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding ESS Tech and Plug Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plug Power 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 Plug Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plug Power has no effect on the direction of ESS Tech i.e., ESS Tech and Plug Power go up and down completely randomly.

Pair Corralation between ESS Tech and Plug Power

Considering the 90-day investment horizon ESS Tech is expected to generate 1.05 times more return on investment than Plug Power. However, ESS Tech is 1.05 times more volatile than Plug Power. It trades about -0.02 of its potential returns per unit of risk. Plug Power is currently generating about -0.03 per unit of risk. If you would invest  1,635  in ESS Tech on December 26, 2024 and sell it today you would lose (1,304) from holding ESS Tech or give up 79.76% 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.  Plug Power

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.

Plug Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days Plug Power 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 nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with ESS Tech and Plug Power

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

The idea behind ESS Tech and Plug Power 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.