Correlation Between FuelCell Energy and Encore Wire

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

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

Diversification Opportunities for FuelCell Energy and Encore Wire

-0.45

Correlation Coefficient

FuelCell Energy  Encore Wire

Very good diversification

The 3 months correlation between FuelCell and Encore is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding FuelCell Energy and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire and FuelCell 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 FuelCell Energy are associated (or correlated) with Encore Wire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encore Wire has no effect on the direction of FuelCell Energy i.e., FuelCell Energy and Encore Wire go up and down completely randomly.

Pair Corralation between FuelCell Energy and Encore Wire

Given the investment horizon of 90 days FuelCell Energy is expected to under-perform the Encore Wire. In addition to that, FuelCell Energy is 1.86 times more volatile than Encore Wire. It trades about -0.11 of its total potential returns per unit of risk. Encore Wire is currently generating about 0.18 per unit of volatility. If you would invest  21,640  in Encore Wire on January 24, 2024 and sell it today you would earn a total of  6,669  from holding Encore Wire or generate 30.82% return on investment over 90 days.

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

FuelCell Energy  vs.  Encore Wire

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 uncertain 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.

Encore Wire

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Encore Wire exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FuelCell Energy and Encore Wire

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

The idea behind FuelCell Energy and Encore Wire 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.