Correlation Between Advanced Energy and Powell Industries

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

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

Diversification Opportunities for Advanced Energy and Powell Industries

0.88

Correlation Coefficient

Advanced Energy  Powell Industries

Very poor diversification

The 3 months correlation between Advanced and Powell is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Industries and Powell Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powell Industries and Advanced 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 Advanced Energy Industries are associated (or correlated) with Powell Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powell Industries has no effect on the direction of Advanced Energy i.e., Advanced Energy and Powell Industries go up and down completely randomly.

Pair Corralation between Advanced Energy and Powell Industries

Given the investment horizon of 90 days Advanced Energy is expected to generate 3.89 times less return on investment than Powell Industries. But when comparing it to its historical volatility, Advanced Energy Industries is 2.66 times less risky than Powell Industries. It trades about 0.14 of its potential returns per unit of risk. Powell Industries is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  15,248  in Powell Industries on August 31, 2024 and sell it today you would earn a total of  10,987  from holding Powell Industries or generate 72.06% return on investment over 90 days.

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

Advanced Energy Industries  vs.  Powell Industries

Advanced Energy Indu

Risk-Adjusted Performance

10 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Advanced Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Powell Industries

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Powell Industries are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Powell Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Advanced Energy and Powell Industries

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

The idea behind Advanced Energy Industries and Powell Industries 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.