Correlation Between Solid Power and Quantumscape Corp

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

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

Diversification Opportunities for Solid Power and Quantumscape Corp

0.56

Correlation Coefficient

Solid Power  Quantumscape Corp

Very weak diversification

The 3 months correlation between Solid and Quantumscape is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Solid Power and Quantumscape Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantumscape Corp and Solid Power 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 Solid Power are associated (or correlated) with Quantumscape Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantumscape Corp has no effect on the direction of Solid Power i.e., Solid Power and Quantumscape Corp go up and down completely randomly.

Pair Corralation between Solid Power and Quantumscape Corp

Assuming the 90 days horizon Solid Power is expected to generate 4.65 times more return on investment than Quantumscape Corp. However, Solid Power is 4.65 times more volatile than Quantumscape Corp. It trades about 0.14 of its potential returns per unit of risk. Quantumscape Corp is currently generating about -0.02 per unit of risk. If you would invest  9.04  in Solid Power on December 2, 2024 and sell it today you would earn a total of  10.96  from holding Solid Power or generate 121.24% return on investment over 90 days.

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

Solid Power  vs.  Quantumscape Corp

Solid Power

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Solid Power are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Solid Power showed solid returns over the last few months and may actually be approaching a breakup point.

Quantumscape Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Quantumscape Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Quantumscape Corp is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Solid Power and Quantumscape Corp

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

The idea behind Solid Power and Quantumscape Corp 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.