Correlation Between Advanced Energy and Powerstorm Holdings

Can any of the company-specific risk be diversified away by investing in both Advanced Energy and Powerstorm Holdings 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 Powerstorm Holdings 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 Powerstorm Holdings, you can compare the effects of market volatilities on Advanced Energy and Powerstorm Holdings 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 Powerstorm Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Energy and Powerstorm Holdings.

Diversification Opportunities for Advanced Energy and Powerstorm Holdings

-0.57

Correlation Coefficient

Advanced Energy  Powerstorm Holdings

Excellent diversification

The 3 months correlation between Advanced and Powerstorm is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Industries and Powerstorm Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Powerstorm Holdings 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 Powerstorm Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Powerstorm Holdings has no effect on the direction of Advanced Energy i.e., Advanced Energy and Powerstorm Holdings go up and down completely randomly.

Pair Corralation between Advanced Energy and Powerstorm Holdings

Given the investment horizon of 90 days Advanced Energy Industries is expected to generate 0.42 times more return on investment than Powerstorm Holdings. However, Advanced Energy Industries is 2.38 times less risky than Powerstorm Holdings. It trades about 0.04 of its potential returns per unit of risk. Powerstorm Holdings is currently generating about -0.03 per unit of risk. If you would invest  10,676  in Advanced Energy Industries on October 1, 2024 and sell it today you would earn a total of  838.00  from holding Advanced Energy Industries or generate 7.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Advanced Energy Industries  vs.  Powerstorm Holdings

Advanced Energy Indu

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward indicators, Advanced Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Powerstorm Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Powerstorm Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Advanced Energy and Powerstorm Holdings

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

The idea behind Advanced Energy Industries and Powerstorm 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.