Correlation Between Power Solutions and Enerpac Tool

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

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

Diversification Opportunities for Power Solutions and Enerpac Tool

0.38

Correlation Coefficient

Power Solutions  Enerpac Tool

Weak diversification

The 3 months correlation between Power and Enerpac is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Power Solutions International, and Enerpac Tool Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enerpac Tool Group and Power Solutions 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 Power Solutions International, are associated (or correlated) with Enerpac Tool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enerpac Tool Group has no effect on the direction of Power Solutions i.e., Power Solutions and Enerpac Tool go up and down completely randomly.

Pair Corralation between Power Solutions and Enerpac Tool

Given the investment horizon of 90 days Power Solutions International, is expected to generate 8.64 times more return on investment than Enerpac Tool. However, Power Solutions is 8.64 times more volatile than Enerpac Tool Group. It trades about 0.06 of its potential returns per unit of risk. Enerpac Tool Group is currently generating about -0.47 per unit of risk. If you would invest  2,900  in Power Solutions International, on October 6, 2024 and sell it today you would earn a total of  23.00  from holding Power Solutions International, or generate 0.79% return on investment over 90 days.

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

Power Solutions International,  vs.  Enerpac Tool Group

Power Solutions Inte

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Power Solutions International, are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward indicators, Power Solutions showed solid returns over the last few months and may actually be approaching a breakup point.

Enerpac Tool Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enerpac Tool Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Enerpac Tool is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Power Solutions and Enerpac Tool

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

The idea behind Power Solutions International, and Enerpac Tool 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.