Correlation Between Solar Alliance and Enphase Energy

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

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

Diversification Opportunities for Solar Alliance and Enphase Energy

0.53

Correlation Coefficient

Solar Alliance  Enphase Energy

Very weak diversification

The 3 months correlation between Solar and Enphase is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Solar Alliance Energy and Enphase Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enphase Energy and Solar Alliance 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 Solar Alliance Energy are associated (or correlated) with Enphase Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enphase Energy has no effect on the direction of Solar Alliance i.e., Solar Alliance and Enphase Energy go up and down completely randomly.

Pair Corralation between Solar Alliance and Enphase Energy

Assuming the 90 days horizon Solar Alliance Energy is expected to generate 3.58 times more return on investment than Enphase Energy. However, Solar Alliance is 3.58 times more volatile than Enphase Energy. It trades about 0.05 of its potential returns per unit of risk. Enphase Energy is currently generating about -0.06 per unit of risk. If you would invest  1.71  in Solar Alliance Energy on December 28, 2024 and sell it today you would lose (0.06) from holding Solar Alliance Energy or give up 3.51% of portfolio value over 90 days.

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

Solar Alliance Energy  vs.  Enphase Energy

Solar Alliance Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Solar Alliance Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Solar Alliance reported solid returns over the last few months and may actually be approaching a breakup point.

Enphase Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Enphase Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Solar Alliance and Enphase Energy

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

The idea behind Solar Alliance Energy and Enphase Energy 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.