Correlation Between Vestas Wind and Ballard Power

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

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

Diversification Opportunities for Vestas Wind and Ballard Power

0.88

Correlation Coefficient

Vestas Wind  Ballard Power

Very poor diversification

The 3 months correlation between Vestas and Ballard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and Ballard Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ballard Power Systems and Vestas Wind 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 Vestas Wind Systems are associated (or correlated) with Ballard Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ballard Power Systems has no effect on the direction of Vestas Wind i.e., Vestas Wind and Ballard Power go up and down completely randomly.

Pair Corralation between Vestas Wind and Ballard Power

Assuming the 90 days trading horizon Vestas Wind Systems is expected to under-perform the Ballard Power. But the stock apears to be less risky and, when comparing its historical volatility, Vestas Wind Systems is 1.61 times less risky than Ballard Power. The stock trades about -0.17 of its potential returns per unit of risk. The Ballard Power Systems is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  164.00  in Ballard Power Systems on September 2, 2024 and sell it today you would lose (23.00) from holding Ballard Power Systems or give up 14.02% of portfolio value over 90 days.

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

Vestas Wind Systems  vs.  Ballard Power Systems

Vestas Wind Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vestas Wind Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Ballard Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ballard Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Vestas Wind and Ballard Power

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

The idea behind Vestas Wind Systems and Ballard Power Systems 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.