Correlation Between Advanced Energy and FuelCell Energy

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

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

Diversification Opportunities for Advanced Energy and FuelCell Energy

0.72

Correlation Coefficient

Advanced Energy  FuelCell Energy

Poor diversification

The 3 months correlation between Advanced and FuelCell is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Industries and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy and Advanced Energy 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 Advanced Energy Industries are associated (or correlated) with FuelCell Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FuelCell Energy has no effect on the direction of Advanced Energy i.e., Advanced Energy and FuelCell Energy go up and down completely randomly.

Pair Corralation between Advanced Energy and FuelCell Energy

Given the investment horizon of 90 days Advanced Energy Industries is expected to generate 0.41 times more return on investment than FuelCell Energy. However, Advanced Energy Industries is 2.45 times less risky than FuelCell Energy. It trades about -0.12 of its potential returns per unit of risk. FuelCell Energy is currently generating about -0.2 per unit of risk. If you would invest  9,860  in Advanced Energy Industries on January 26, 2024 and sell it today you would lose (576.00) from holding Advanced Energy Industries or give up 5.84% of portfolio value over 90 days.

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

Advanced Energy Industries  vs.  FuelCell Energy

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.

FuelCell Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FuelCell Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Advanced Energy and FuelCell Energy

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

The idea behind Advanced Energy Industries and FuelCell Energy 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.