Correlation Between Encore Wire and Flux Power

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

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

Diversification Opportunities for Encore Wire and Flux Power

-0.15

Correlation Coefficient

Encore Wire  Flux Power

Good diversification

The 3 months correlation between Encore and Flux is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Encore Wire and Flux Power Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flux Power Holdings and Encore Wire 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 Encore Wire are associated (or correlated) with Flux Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flux Power Holdings has no effect on the direction of Encore Wire i.e., Encore Wire and Flux Power go up and down completely randomly.

Pair Corralation between Encore Wire and Flux Power

Given the investment horizon of 90 days Encore Wire is expected to generate 0.53 times more return on investment than Flux Power. However, Encore Wire is 1.87 times less risky than Flux Power. It trades about 0.22 of its potential returns per unit of risk. Flux Power Holdings is currently generating about 0.01 per unit of risk. If you would invest  20,950  in Encore Wire on January 17, 2024 and sell it today you would earn a total of  8,173  from holding Encore Wire or generate 39.01% return on investment over 90 days.

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

Encore Wire  vs.  Flux Power Holdings

Encore Wire

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 16 (%) 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.

Flux Power Holdings

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Flux Power Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Flux Power is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Encore Wire and Flux Power

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

The idea behind Encore Wire and Flux Power Holdings 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.