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 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

-0.81

Correlation Coefficient

ABB  Advanced Energy

Pay attention - limited upside

The 3 months correlation between ABB and Advanced is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding ABB 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 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

Assuming the 90 days horizon ABB is expected to generate 0.76 times more return on investment than Advanced Energy. However, ABB is 1.32 times less risky than Advanced Energy. It trades about 0.16 of its potential returns per unit of risk. Advanced Energy Industries is currently generating about -0.09 per unit of risk. If you would invest  4,134  in ABB on January 25, 2024 and sell it today you would earn a total of  704.00  from holding ABB or generate 17.03% return on investment over 90 days.

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

ABB  vs.  Advanced Energy Industries

ABB

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, ABB reported solid returns over the last few months and may actually be approaching a breakup point.

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 unfluctuating 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 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.