Correlation Between Electra Battery and FuelCell Energy

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

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

Diversification Opportunities for Electra Battery and FuelCell Energy

0.38

Correlation Coefficient

Electra Battery  FuelCell Energy

Weak diversification

The 3 months correlation between Electra and FuelCell is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Electra Battery Materials and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy and Electra Battery 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 Electra Battery Materials 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 Electra Battery i.e., Electra Battery and FuelCell Energy go up and down completely randomly.

Pair Corralation between Electra Battery and FuelCell Energy

Given the investment horizon of 90 days Electra Battery Materials is expected to generate 1.08 times more return on investment than FuelCell Energy. However, Electra Battery is 1.08 times more volatile than FuelCell Energy. It trades about 0.1 of its potential returns per unit of risk. FuelCell Energy is currently generating about -0.08 per unit of risk. If you would invest  32.00  in Electra Battery Materials on January 26, 2024 and sell it today you would earn a total of  9.01  from holding Electra Battery Materials or generate 28.16% return on investment over 90 days.

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

Electra Battery Materials  vs.  FuelCell Energy

Electra Battery Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electra Battery Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental drivers, Electra Battery displayed solid returns over the last few months and may actually be approaching a breakup point.

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 Electra Battery and FuelCell Energy

The main advantage of trading using opposite Electra Battery and FuelCell Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electra Battery 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 Electra Battery Materials 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.