Correlation Between Pioneer Power and ABB

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

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

Diversification Opportunities for Pioneer Power and ABB

-0.27

Correlation Coefficient

Pioneer Power  ABB

Very good diversification

The 3 months correlation between Pioneer and ABB is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Pioneer Power Solutions and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and Pioneer Power 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 Pioneer Power Solutions are associated (or correlated) with ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of Pioneer Power i.e., Pioneer Power and ABB go up and down completely randomly.

Pair Corralation between Pioneer Power and ABB

Given the investment horizon of 90 days Pioneer Power is expected to generate 1.21 times less return on investment than ABB. In addition to that, Pioneer Power is 1.86 times more volatile than ABB. It trades about 0.03 of its total potential returns per unit of risk. ABB is currently generating about 0.06 per unit of volatility. If you would invest  2,722  in ABB on January 26, 2024 and sell it today you would earn a total of  2,235  from holding ABB or generate 82.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Pioneer Power Solutions  vs.  ABB

Pioneer Power Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pioneer Power Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

ABB

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, ABB reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pioneer Power and ABB

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

The idea behind Pioneer Power Solutions and ABB 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.