Correlation Between FuelCell Energy and Espey Mfg

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

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

Diversification Opportunities for FuelCell Energy and Espey Mfg

-0.7

Correlation Coefficient

FuelCell Energy  Espey Mfg

Excellent diversification

The 3 months correlation between FuelCell and Espey is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding FuelCell Energy and Espey Mfg Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Espey Mfg Electronics and FuelCell 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 FuelCell Energy are associated (or correlated) with Espey Mfg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Espey Mfg Electronics has no effect on the direction of FuelCell Energy i.e., FuelCell Energy and Espey Mfg go up and down completely randomly.

Pair Corralation between FuelCell Energy and Espey Mfg

Given the investment horizon of 90 days FuelCell Energy is expected to generate 1.41 times less return on investment than Espey Mfg. In addition to that, FuelCell Energy is 2.25 times more volatile than Espey Mfg Electronics. It trades about 0.04 of its total potential returns per unit of risk. Espey Mfg Electronics is currently generating about 0.14 per unit of volatility. If you would invest  2,285  in Espey Mfg Electronics on September 2, 2024 and sell it today you would earn a total of  733.00  from holding Espey Mfg Electronics or generate 32.08% return on investment over 90 days.

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

FuelCell Energy  vs.  Espey Mfg Electronics

FuelCell Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FuelCell Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady technical and fundamental indicators, FuelCell Energy disclosed solid returns over the last few months and may actually be approaching a breakup point.

Espey Mfg Electronics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Espey Mfg Electronics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Espey Mfg reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FuelCell Energy and Espey Mfg

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

The idea behind FuelCell Energy and Espey Mfg Electronics 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.