Correlation Between Fuel Tech and Energy Recovery
Can any of the company-specific risk be diversified away by investing in both Fuel Tech and Energy Recovery 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 Fuel Tech and Energy Recovery into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fuel Tech and Energy Recovery, you can compare the effects of market volatilities on Fuel Tech and Energy Recovery 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 Fuel Tech with a short position of Energy Recovery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fuel Tech and Energy Recovery.
Diversification Opportunities for Fuel Tech and Energy Recovery
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Fuel and Energy is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Fuel Tech and Energy Recovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Recovery and Fuel Tech 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 Fuel Tech are associated (or correlated) with Energy Recovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Recovery has no effect on the direction of Fuel Tech i.e., Fuel Tech and Energy Recovery go up and down completely randomly.
Pair Corralation between Fuel Tech and Energy Recovery
Given the investment horizon of 90 days Fuel Tech is expected to generate 0.89 times more return on investment than Energy Recovery. However, Fuel Tech is 1.13 times less risky than Energy Recovery. It trades about 0.06 of its potential returns per unit of risk. Energy Recovery is currently generating about -0.1 per unit of risk. If you would invest 103.00 in Fuel Tech on January 20, 2024 and sell it today you would earn a total of 9.00 from holding Fuel Tech or generate 8.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 98.41% |
| Values | Daily Returns |
Fuel Tech vs. Energy Recovery
Performance |
| Timeline |
| Fuel Tech |
| Energy Recovery |
Fuel Tech and Energy Recovery Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fuel Tech and Energy Recovery
The main advantage of trading using opposite Fuel Tech and Energy Recovery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fuel Tech position performs unexpectedly, Energy Recovery 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 Energy Recovery will offset losses from the drop in Energy Recovery's long position.| Fuel Tech vs. Federal Signal | Fuel Tech vs. CECO Environmental Corp | Fuel Tech vs. Zurn Elkay Water | Fuel Tech vs. Greenlane Renewables |
| Energy Recovery vs. Zurn Elkay Water | Energy Recovery vs. CECO Environmental Corp | Energy Recovery vs. Federal Signal | Energy Recovery vs. CO2 Solutions |
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.
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