Correlation Between Power Solutions and Strategy Shares

Can any of the company-specific risk be diversified away by investing in both Power Solutions and Strategy Shares 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 Strategy Shares 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 Strategy Shares, you can compare the effects of market volatilities on Power Solutions and Strategy Shares 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 Strategy Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power Solutions and Strategy Shares.

Diversification Opportunities for Power Solutions and Strategy Shares

0.29

Correlation Coefficient

Power Solutions  Strategy Shares

Modest diversification

The 3 months correlation between Power and Strategy is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Power Solutions International, and Strategy Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategy Shares 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 Strategy Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategy Shares has no effect on the direction of Power Solutions i.e., Power Solutions and Strategy Shares go up and down completely randomly.

Pair Corralation between Power Solutions and Strategy Shares

Given the investment horizon of 90 days Power Solutions International, is expected to generate 6.33 times more return on investment than Strategy Shares. However, Power Solutions is 6.33 times more volatile than Strategy Shares. It trades about 0.1 of its potential returns per unit of risk. Strategy Shares is currently generating about 0.05 per unit of risk. If you would invest  305.00  in Power Solutions International, on October 12, 2024 and sell it today you would earn a total of  2,950  from holding Power Solutions International, or generate 967.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	25.66%
Values	Daily Returns

Power Solutions International,  vs.  Strategy Shares

Power Solutions Inte

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Power Solutions International, are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Power Solutions showed solid returns over the last few months and may actually be approaching a breakup point.

Strategy Shares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Strategy Shares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Strategy Shares is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Power Solutions and Strategy Shares

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

The idea behind Power Solutions International, and Strategy Shares 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.