Correlation Between Ormat Technologies and Stem

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

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

Diversification Opportunities for Ormat Technologies and Stem

0.19

Correlation Coefficient

Ormat Technologies  Stem

Average diversification

The 3 months correlation between Ormat and Stem is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Ormat Technologies and Stem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stem Inc and Ormat Technologies 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 Ormat Technologies are associated (or correlated) with Stem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stem Inc has no effect on the direction of Ormat Technologies i.e., Ormat Technologies and Stem go up and down completely randomly.

Pair Corralation between Ormat Technologies and Stem

Considering the 90-day investment horizon Ormat Technologies is expected to under-perform the Stem. But the stock apears to be less risky and, when comparing its historical volatility, Ormat Technologies is 5.13 times less risky than Stem. The stock trades about -0.09 of its potential returns per unit of risk. The Stem Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  34.00  in Stem Inc on September 22, 2024 and sell it today you would lose (2.00) from holding Stem Inc or give up 5.88% of portfolio value over 90 days.

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

Ormat Technologies  vs.  Stem Inc

Ormat Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ormat Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Stem Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stem Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Stem displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ormat Technologies and Stem

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

The idea behind Ormat Technologies and Stem Inc 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.