Correlation Between Energy Services and Comfort Systems

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

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

Diversification Opportunities for Energy Services and Comfort Systems

0.82

Correlation Coefficient

Energy Services  Comfort Systems

Very poor diversification

The 3 months correlation between Energy and Comfort is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Energy Services and Comfort Systems USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Comfort Systems USA and Energy Services 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 Energy Services are associated (or correlated) with Comfort Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Comfort Systems USA has no effect on the direction of Energy Services i.e., Energy Services and Comfort Systems go up and down completely randomly.

Pair Corralation between Energy Services and Comfort Systems

Given the investment horizon of 90 days Energy Services is expected to generate 1.1 times more return on investment than Comfort Systems. However, Energy Services is 1.1 times more volatile than Comfort Systems USA. It trades about 0.3 of its potential returns per unit of risk. Comfort Systems USA is currently generating about 0.29 per unit of risk. If you would invest  972.00  in Energy Services on September 2, 2024 and sell it today you would earn a total of  637.00  from holding Energy Services or generate 65.53% return on investment over 90 days.

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

Energy Services  vs.  Comfort Systems USA

Energy Services

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Services are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Energy Services sustained solid returns over the last few months and may actually be approaching a breakup point.

Comfort Systems USA

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Comfort Systems USA are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile forward indicators, Comfort Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energy Services and Comfort Systems

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

The idea behind Energy Services and Comfort Systems USA 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.