Correlation Between American Superconductor and Vestas Wind

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

By analyzing existing cross correlation between American Superconductor and Vestas Wind Systems, you can compare the effects of market volatilities on American Superconductor and Vestas Wind 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 American Superconductor with a short position of Vestas Wind. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Superconductor and Vestas Wind.

Diversification Opportunities for American Superconductor and Vestas Wind

-0.85

Correlation Coefficient

American Superconductor  Vestas Wind

Pay attention - limited upside

The 3 months correlation between American and Vestas is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding American Superconductor and Vestas Wind Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vestas Wind Systems and American Superconductor 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 American Superconductor are associated (or correlated) with Vestas Wind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vestas Wind Systems has no effect on the direction of American Superconductor i.e., American Superconductor and Vestas Wind go up and down completely randomly.

Pair Corralation between American Superconductor and Vestas Wind

Given the investment horizon of 90 days American Superconductor is expected to generate 1.87 times more return on investment than Vestas Wind. However, American Superconductor is 1.87 times more volatile than Vestas Wind Systems. It trades about 0.08 of its potential returns per unit of risk. Vestas Wind Systems is currently generating about -0.23 per unit of risk. If you would invest  2,168  in American Superconductor on September 14, 2024 and sell it today you would earn a total of  469.00  from holding American Superconductor or generate 21.63% return on investment over 90 days.

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

American Superconductor  vs.  Vestas Wind Systems

American Superconductor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Superconductor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, American Superconductor exhibited solid returns over the last few months and may actually be approaching a breakup point.

Vestas Wind Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vestas Wind Systems 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 fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with American Superconductor and Vestas Wind

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

The idea behind American Superconductor and Vestas Wind Systems 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.