Correlation Between ABB and Advanced Energy

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

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

Diversification Opportunities for ABB and Advanced Energy

-0.83

Correlation Coefficient

ABB  Advanced Energy

Pay attention - limited upside

The 3 months correlation between ABB and Advanced is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding ABB Ltd ADR and Advanced Energy Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Energy Indu and ABB 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 ABB Ltd ADR are associated (or correlated) with Advanced Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Energy Indu has no effect on the direction of ABB i.e., ABB and Advanced Energy go up and down completely randomly.

Pair Corralation between ABB and Advanced Energy

If you would invest  3,900  in ABB Ltd ADR on January 26, 2024 and sell it today you would earn a total of  0.00  from holding ABB Ltd ADR or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	4.76%
Values	Daily Returns

ABB Ltd ADR  vs.  Advanced Energy Industries

ABB Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ABB Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, ABB is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Advanced Energy Indu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Advanced Energy Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's forward indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with ABB and Advanced Energy

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

The idea behind ABB Ltd ADR and Advanced Energy Industries 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.