Correlation Between Power Solution and Sea Oil

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

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

Diversification Opportunities for Power Solution and Sea Oil

0.09

Correlation Coefficient

Power Solution  Sea Oil

Significant diversification

The 3 months correlation between Power and Sea is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Power Solution Technologies and Sea Oil Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea Oil Public and Power Solution 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 Solution Technologies are associated (or correlated) with Sea Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea Oil Public has no effect on the direction of Power Solution i.e., Power Solution and Sea Oil go up and down completely randomly.

Pair Corralation between Power Solution and Sea Oil

Assuming the 90 days trading horizon Power Solution Technologies is expected to generate 81.29 times more return on investment than Sea Oil. However, Power Solution is 81.29 times more volatile than Sea Oil Public. It trades about 0.12 of its potential returns per unit of risk. Sea Oil Public is currently generating about 0.05 per unit of risk. If you would invest  0.00  in Power Solution Technologies on September 3, 2024 and sell it today you would earn a total of  43.00  from holding Power Solution Technologies or generate 9.223372036854776E16% return on investment over 90 days.

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

Power Solution Technologies  vs.  Sea Oil Public

Power Solution Techn

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Power Solution Technologies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak forward-looking signals, Power Solution disclosed solid returns over the last few months and may actually be approaching a breakup point.

Sea Oil Public

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sea Oil Public are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Sea Oil is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Power Solution and Sea Oil

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

The idea behind Power Solution Technologies and Sea Oil Public 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.