Correlation Between Fuel Tech and Energy Services

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

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

Diversification Opportunities for Fuel Tech and Energy Services

0.21

Correlation Coefficient

Fuel Tech  Energy Services

Modest diversification

The 3 months correlation between Fuel and Energy is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Fuel Tech and Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Services and Fuel Tech 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 Fuel Tech are associated (or correlated) with Energy Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Services has no effect on the direction of Fuel Tech i.e., Fuel Tech and Energy Services go up and down completely randomly.

Pair Corralation between Fuel Tech and Energy Services

Given the investment horizon of 90 days Fuel Tech is expected to under-perform the Energy Services. But the stock apears to be less risky and, when comparing its historical volatility, Fuel Tech is 1.81 times less risky than Energy Services. The stock trades about -0.01 of its potential returns per unit of risk. The Energy Services is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  955.00  in Energy Services on September 25, 2024 and sell it today you would earn a total of  645.00  from holding Energy Services or generate 67.54% return on investment over 90 days.

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

Fuel Tech  vs.  Energy Services

Fuel Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fuel Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Fuel Tech is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Energy Services

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Services are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Energy Services sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fuel Tech and Energy Services

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

The idea behind Fuel Tech and Energy Services 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 Anywhere module to track or share privately all of your investments from the convenience of any device.