Correlation Between Ocean Power and Acuity Brands

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

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

Diversification Opportunities for Ocean Power and Acuity Brands

0.21

Correlation Coefficient

Ocean Power  Acuity Brands

Modest diversification

The 3 months correlation between Ocean and Acuity is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Ocean Power Technologies and Acuity Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acuity Brands and Ocean 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 Ocean Power Technologies are associated (or correlated) with Acuity Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acuity Brands has no effect on the direction of Ocean Power i.e., Ocean Power and Acuity Brands go up and down completely randomly.

Pair Corralation between Ocean Power and Acuity Brands

Given the investment horizon of 90 days Ocean Power Technologies is expected to generate 7.49 times more return on investment than Acuity Brands. However, Ocean Power is 7.49 times more volatile than Acuity Brands. It trades about 0.11 of its potential returns per unit of risk. Acuity Brands is currently generating about 0.06 per unit of risk. If you would invest  18.00  in Ocean Power Technologies on September 28, 2024 and sell it today you would earn a total of  30.00  from holding Ocean Power Technologies or generate 166.67% return on investment over 90 days.

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

Ocean Power Technologies  vs.  Acuity Brands

Ocean Power Technologies

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ocean Power Technologies are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Ocean Power unveiled solid returns over the last few months and may actually be approaching a breakup point.

Acuity Brands

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Acuity Brands are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Acuity Brands may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ocean Power and Acuity Brands

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

The idea behind Ocean Power Technologies and Acuity Brands 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.