Correlation Between Powell Industries and Transurban

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

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

Diversification Opportunities for Powell Industries and Transurban

-0.57

Correlation Coefficient

Powell Industries  Transurban

Excellent diversification

The 3 months correlation between Powell and Transurban is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Powell Industries and Transurban Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transurban Group and Powell Industries 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 Powell Industries are associated (or correlated) with Transurban. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transurban Group has no effect on the direction of Powell Industries i.e., Powell Industries and Transurban go up and down completely randomly.

Pair Corralation between Powell Industries and Transurban

Given the investment horizon of 90 days Powell Industries is expected to generate 2.2 times more return on investment than Transurban. However, Powell Industries is 2.2 times more volatile than Transurban Group. It trades about 0.15 of its potential returns per unit of risk. Transurban Group is currently generating about -0.08 per unit of risk. If you would invest  16,815  in Powell Industries on September 13, 2024 and sell it today you would earn a total of  8,761  from holding Powell Industries or generate 52.1% return on investment over 90 days.

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

Powell Industries  vs.  Transurban Group

Powell Industries

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Powell Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Powell Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Transurban Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Powell Industries and Transurban

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

The idea behind Powell Industries and Transurban Group 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.