Can any of the company-specific risk be diversified away by investing in both Sunrise New 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 Sunrise New and FuelCell Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sunrise New Energy and FuelCell Energy, you can compare the effects of market volatilities on Sunrise New 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 Sunrise New with a short position of FuelCell Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sunrise New and FuelCell Energy.
Diversification Opportunities for Sunrise New and FuelCell Energy
The 3 months correlation between Sunrise and FuelCell is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Sunrise New Energy and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy and Sunrise New 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 Sunrise New Energy 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 Sunrise New i.e., Sunrise New and FuelCell Energy go up and down completely randomly.
Pair Corralation between Sunrise New and FuelCell Energy
Given the investment horizon of 90 days Sunrise New Energy is expected to under-perform the FuelCell Energy. But the stock apears to be less risky and, when comparing its historical volatility, Sunrise New Energy is 1.02 times less risky than FuelCell Energy. The stock trades about -0.2 of its potential returns per unit of risk. The FuelCell Energy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 120.00 in FuelCell Energy on September 2, 2023 and sell it today you would earn a total of 2.00 from holding FuelCell Energy or generate 1.67% return on investment over 90 days.
Over the last 90 days Sunrise New Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.
Over the last 90 days FuelCell Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.
Sunrise New and FuelCell Energy Volatility Contrast
Predicted Return Density
Pair Trading with Sunrise New and FuelCell Energy
The main advantage of trading using opposite Sunrise New and FuelCell Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sunrise New 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 Sunrise New Energy 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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