Correlation Between Evoqua Water and TomCo Energy

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

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

Diversification Opportunities for Evoqua Water and TomCo Energy

-0.13

Correlation Coefficient

Evoqua Water TomCo Energy

Good diversification

The 3 months correlation between Evoqua and TomCo is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Evoqua Water Technologies and TomCo Energy Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TomCo Energy Plc and Evoqua Water 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 Evoqua Water Technologies are associated (or correlated) with TomCo Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TomCo Energy Plc has no effect on the direction of Evoqua Water i.e., Evoqua Water and TomCo Energy go up and down completely randomly.

Pair Corralation between Evoqua Water and TomCo Energy

Given the investment horizon of 90 days Evoqua Water is expected to generate 38.61 times less return on investment than TomCo Energy. But when comparing it to its historical volatility, Evoqua Water Technologies is 24.42 times less risky than TomCo Energy. It trades about 0.02 of its potential returns per unit of risk. TomCo Energy Plc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.50  in TomCo Energy Plc on February 28, 2023 and sell it today you would lose (0.29)  from holding TomCo Energy Plc or give up 58.0% of portfolio value over 90 days.

Evoqua Water Technologies  vs.  TomCo Energy Plc

Evoqua Water Technologies

Evoqua Performance

3 of 100

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

TomCo Energy Plc

TomCo Performance

8 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in TomCo Energy Plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, TomCo Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Evoqua Water and TomCo Energy

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

The idea behind Evoqua Water Technologies and TomCo Energy Plc 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.