Correlation Between Ideal Power and NVent Electric

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

By analyzing existing cross correlation between Ideal Power and nVent Electric PLC, you can compare the effects of market volatilities on Ideal Power and NVent Electric 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 NVent Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ideal Power and NVent Electric.

Diversification Opportunities for Ideal Power and NVent Electric

0.88

Correlation Coefficient

Ideal Power  NVent Electric

Very poor diversification

The 3 months correlation between Ideal and NVent is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Ideal Power and nVent Electric PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nVent Electric 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 NVent Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nVent Electric PLC has no effect on the direction of Ideal Power i.e., Ideal Power and NVent Electric go up and down completely randomly.

Pair Corralation between Ideal Power and NVent Electric

Given the investment horizon of 90 days Ideal Power is expected to under-perform the NVent Electric. In addition to that, Ideal Power is 1.27 times more volatile than nVent Electric PLC. It trades about -0.16 of its total potential returns per unit of risk. nVent Electric PLC is currently generating about -0.1 per unit of volatility. If you would invest  6,818  in nVent Electric PLC on December 28, 2024 and sell it today you would lose (1,237) from holding nVent Electric PLC or give up 18.14% of portfolio value over 90 days.

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

Ideal Power  vs.  nVent Electric PLC

Ideal Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ideal Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

nVent Electric PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days nVent Electric PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Ideal Power and NVent Electric

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

The idea behind Ideal Power and nVent Electric 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.