Correlation Between Ideal Power and AFC Energy

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

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

Diversification Opportunities for Ideal Power and AFC Energy

-0.07

Correlation Coefficient

Ideal Power  AFC Energy

Good diversification

The 3 months correlation between Ideal and AFC is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ideal Power and AFC Energy plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AFC Energy plc and Ideal 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 Ideal Power are associated (or correlated) with AFC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AFC Energy plc has no effect on the direction of Ideal Power i.e., Ideal Power and AFC Energy go up and down completely randomly.

Pair Corralation between Ideal Power and AFC Energy

Given the investment horizon of 90 days Ideal Power is expected to generate 0.8 times more return on investment than AFC Energy. However, Ideal Power is 1.25 times less risky than AFC Energy. It trades about 0.0 of its potential returns per unit of risk. AFC Energy plc is currently generating about 0.0 per unit of risk. If you would invest  1,265  in Ideal Power on October 23, 2024 and sell it today you would lose (514.00) from holding Ideal Power or give up 40.63% of portfolio value over 90 days.

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

Ideal Power  vs.  AFC Energy plc

Ideal Power

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ideal Power are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ideal Power may actually be approaching a critical reversion point that can send shares even higher in February 2025.

AFC Energy plc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AFC Energy plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, AFC Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ideal Power and AFC Energy

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

The idea behind Ideal Power and AFC Energy plc 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.