Correlation Between Centrica PLC and Maxim Power

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

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

Diversification Opportunities for Centrica PLC and Maxim Power

-0.51

Correlation Coefficient

Centrica PLC  Maxim Power

Excellent diversification

The 3 months correlation between Centrica and Maxim is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Centrica PLC ADR and Maxim Power Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maxim Power Corp and Centrica PLC 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 Centrica PLC ADR are associated (or correlated) with Maxim Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maxim Power Corp has no effect on the direction of Centrica PLC i.e., Centrica PLC and Maxim Power go up and down completely randomly.

Pair Corralation between Centrica PLC and Maxim Power

Assuming the 90 days horizon Centrica PLC ADR is expected to generate 0.9 times more return on investment than Maxim Power. However, Centrica PLC ADR is 1.11 times less risky than Maxim Power. It trades about 0.07 of its potential returns per unit of risk. Maxim Power Corp is currently generating about 0.02 per unit of risk. If you would invest  380.00  in Centrica PLC ADR on February 20, 2024 and sell it today you would earn a total of  348.00  from holding Centrica PLC ADR or generate 91.58% return on investment over 90 days.

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

Centrica PLC ADR  vs.  Maxim Power Corp

Centrica PLC ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Centrica PLC ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Centrica PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Maxim Power Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maxim Power Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental 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 Centrica PLC and Maxim Power

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

The idea behind Centrica PLC ADR and Maxim Power 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.

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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.