Correlation Between NVent Electric and Powell Industries

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

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

Diversification Opportunities for NVent Electric and Powell Industries

0.88

Correlation Coefficient

NVent Electric  Powell Industries

Very poor diversification

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

Pair Corralation between NVent Electric and Powell Industries

Considering the 90-day investment horizon nVent Electric PLC is expected to generate 0.68 times more return on investment than Powell Industries. However, nVent Electric PLC is 1.47 times less risky than Powell Industries. It trades about -0.1 of its potential returns per unit of risk. Powell Industries is currently generating about -0.08 per unit of risk. If you would invest  6,918  in nVent Electric PLC on December 21, 2024 and sell it today you would lose (1,232) from holding nVent Electric PLC or give up 17.81% of portfolio value over 90 days.

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

nVent Electric PLC  vs.  Powell Industries

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.

Powell Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Powell Industries 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 quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with NVent Electric and Powell Industries

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

The idea behind nVent Electric PLC and Powell Industries 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.