Correlation Between Iron Road and Energy Technologies

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

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

Diversification Opportunities for Iron Road and Energy Technologies

0.52

Correlation Coefficient

Iron Road  Energy Technologies

Very weak diversification

The 3 months correlation between Iron and Energy is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Energy Technologies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Technologies and Iron Road 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 Iron Road are associated (or correlated) with Energy Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Technologies has no effect on the direction of Iron Road i.e., Iron Road and Energy Technologies go up and down completely randomly.

Pair Corralation between Iron Road and Energy Technologies

Assuming the 90 days trading horizon Iron Road is expected to under-perform the Energy Technologies. In addition to that, Iron Road is 1.29 times more volatile than Energy Technologies Limited. It trades about -0.03 of its total potential returns per unit of risk. Energy Technologies Limited is currently generating about -0.02 per unit of volatility. If you would invest  5.50  in Energy Technologies Limited on September 20, 2024 and sell it today you would lose (2.40) from holding Energy Technologies Limited or give up 43.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Iron Road  vs.  Energy Technologies Limited

Iron Road

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Road has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Energy Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Technologies Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Energy Technologies is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Iron Road and Energy Technologies

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

The idea behind Iron Road and Energy Technologies Limited 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.