Correlation Between Broadwind Energy and American Superconductor

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

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

Diversification Opportunities for Broadwind Energy and American Superconductor

0.18

Correlation Coefficient

Broadwind Energy  American Superconductor

Average diversification

The 3 months correlation between Broadwind and American is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Broadwind Energy and American Superconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Superconductor and Broadwind 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 Broadwind Energy are associated (or correlated) with American Superconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Superconductor has no effect on the direction of Broadwind Energy i.e., Broadwind Energy and American Superconductor go up and down completely randomly.

Pair Corralation between Broadwind Energy and American Superconductor

Given the investment horizon of 90 days Broadwind Energy is expected to generate 1.51 times less return on investment than American Superconductor. In addition to that, Broadwind Energy is 1.1 times more volatile than American Superconductor. It trades about 0.03 of its total potential returns per unit of risk. American Superconductor is currently generating about 0.05 per unit of volatility. If you would invest  594.00  in American Superconductor on January 24, 2024 and sell it today you would earn a total of  580.00  from holding American Superconductor or generate 97.64% return on investment over 90 days.

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

Broadwind Energy  vs.  American Superconductor

Broadwind Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Broadwind Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

American Superconductor

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Superconductor are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, American Superconductor exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Broadwind Energy and American Superconductor

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

The idea behind Broadwind Energy and American Superconductor 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.