Can any of the company-specific risk be diversified away by investing in both Eos 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 Eos 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 Eos Energy Enterprises and FuelCell Energy, you can compare the effects of market volatilities on Eos 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 Eos Energy with a short position of FuelCell Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eos Energy and FuelCell Energy.
Diversification Opportunities for Eos Energy and FuelCell Energy
The 3 months correlation between Eos and FuelCell is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Eos Energy Enterprises and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy and Eos 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 Eos Energy Enterprises 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 Eos Energy i.e., Eos Energy and FuelCell Energy go up and down completely randomly.
Over the last 90 days Eos Energy Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Eos Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Over the last 90 days FuelCell Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, FuelCell Energy is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.
Eos Energy and FuelCell Energy Volatility Contrast
Predicted Return Density
Pair Trading with Eos Energy and FuelCell Energy
The main advantage of trading using opposite Eos Energy and FuelCell Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eos 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 Eos Energy Enterprises 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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