Correlation Between Preformed Line and Advanced Energy

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

By analyzing existing cross correlation between Preformed Line Products and Advanced Energy Industries, you can compare the effects of market volatilities on Preformed Line and Advanced Energy 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 Preformed Line with a short position of Advanced Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Preformed Line and Advanced Energy.

Diversification Opportunities for Preformed Line and Advanced Energy

0.74

Correlation Coefficient

Preformed Line  Advanced Energy

Poor diversification

The 3 months correlation between Preformed and Advanced is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Preformed Line Products and Advanced Energy Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Energy Indu and Preformed Line 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 Preformed Line Products are associated (or correlated) with Advanced Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Energy Indu has no effect on the direction of Preformed Line i.e., Preformed Line and Advanced Energy go up and down completely randomly.

Pair Corralation between Preformed Line and Advanced Energy

Given the investment horizon of 90 days Preformed Line Products is expected to under-perform the Advanced Energy. But the stock apears to be less risky and, when comparing its historical volatility, Preformed Line Products is 1.21 times less risky than Advanced Energy. The stock trades about -0.24 of its potential returns per unit of risk. The Advanced Energy Industries is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  11,243  in Advanced Energy Industries on September 22, 2024 and sell it today you would earn a total of  57.00  from holding Advanced Energy Industries or generate 0.51% return on investment over 90 days.

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

Preformed Line Products  vs.  Advanced Energy Industries

Preformed Line Products

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Preformed Line Products are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Preformed Line is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Advanced Energy Indu

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Advanced Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Preformed Line and Advanced Energy

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

The idea behind Preformed Line Products and Advanced Energy 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.