Correlation Between Power Wind and Elite Material

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

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

Diversification Opportunities for Power Wind and Elite Material

0.53

Correlation Coefficient

Power Wind  Elite Material

Very weak diversification

The 3 months correlation between Power and Elite is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Power Wind Health and Elite Material Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elite Material and Power Wind 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 Power Wind Health are associated (or correlated) with Elite Material. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elite Material has no effect on the direction of Power Wind i.e., Power Wind and Elite Material go up and down completely randomly.

Pair Corralation between Power Wind and Elite Material

Assuming the 90 days trading horizon Power Wind Health is expected to under-perform the Elite Material. But the stock apears to be less risky and, when comparing its historical volatility, Power Wind Health is 1.98 times less risky than Elite Material. The stock trades about -0.19 of its potential returns per unit of risk. The Elite Material Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  47,050  in Elite Material Co on September 1, 2024 and sell it today you would lose (200.00) from holding Elite Material Co or give up 0.43% of portfolio value over 90 days.

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

Power Wind Health  vs.  Elite Material Co

Power Wind Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power Wind Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in December 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Elite Material

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elite Material Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Elite Material is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Power Wind and Elite Material

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

The idea behind Power Wind Health and Elite Material Co 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.