Correlation Between Bank Of and FuelCell Energy

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

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

Diversification Opportunities for Bank Of and FuelCell Energy

-0.45

Correlation Coefficient

Bank Of  FuelCell Energy

Very good diversification

The 3 months correlation between Bank and FuelCell is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding The Bank of and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy and Bank Of 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 The Bank of are associated (or correlated) with FuelCell Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FuelCell Energy has no effect on the direction of Bank Of i.e., Bank Of and FuelCell Energy go up and down completely randomly.

Pair Corralation between Bank Of and FuelCell Energy

Assuming the 90 days horizon Bank Of is expected to generate 1.29 times less return on investment than FuelCell Energy. But when comparing it to its historical volatility, The Bank of is 7.06 times less risky than FuelCell Energy. It trades about 0.21 of its potential returns per unit of risk. FuelCell Energy is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,320  in FuelCell Energy on September 18, 2024 and sell it today you would lose (46.00) from holding FuelCell Energy or give up 3.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

The Bank of  vs.  FuelCell Energy

The Bank

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Bank of are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Bank Of reported solid returns over the last few months and may actually be approaching a breakup point.

FuelCell Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FuelCell Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FuelCell Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bank Of and FuelCell Energy

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

The idea behind The Bank of and FuelCell Energy 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.