Correlation Between AFC Energy and RedFlow

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

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

Diversification Opportunities for AFC Energy and RedFlow

0.07

Correlation Coefficient

AFC Energy  RedFlow

Significant diversification

The 3 months correlation between AFC and RedFlow is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding AFC Energy plc and RedFlow Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RedFlow Limited and AFC 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 AFC Energy plc are associated (or correlated) with RedFlow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RedFlow Limited has no effect on the direction of AFC Energy i.e., AFC Energy and RedFlow go up and down completely randomly.

Pair Corralation between AFC Energy and RedFlow

Assuming the 90 days horizon AFC Energy plc is expected to under-perform the RedFlow. But the pink sheet apears to be less risky and, when comparing its historical volatility, AFC Energy plc is 18.76 times less risky than RedFlow. The pink sheet trades about -0.04 of its potential returns per unit of risk. The RedFlow Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  8.97  in RedFlow Limited on September 23, 2024 and sell it today you would lose (8.96) from holding RedFlow Limited or give up 99.89% of portfolio value over 90 days.

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

AFC Energy plc  vs.  RedFlow Limited

AFC Energy plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AFC Energy plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

RedFlow Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RedFlow Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, RedFlow reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AFC Energy and RedFlow

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

The idea behind AFC Energy plc and RedFlow Limited 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.