Correlation Between Global Power and Earth Tech

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

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

Diversification Opportunities for Global Power and Earth Tech

0.55

Correlation Coefficient

Global Power  Earth Tech

Very weak diversification

The 3 months correlation between Global and Earth is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Global Power Synergy and Earth Tech Environment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Earth Tech Environment and Global Power 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 Global Power Synergy are associated (or correlated) with Earth Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Earth Tech Environment has no effect on the direction of Global Power i.e., Global Power and Earth Tech go up and down completely randomly.

Pair Corralation between Global Power and Earth Tech

Assuming the 90 days trading horizon Global Power Synergy is expected to generate 0.62 times more return on investment than Earth Tech. However, Global Power Synergy is 1.6 times less risky than Earth Tech. It trades about 0.03 of its potential returns per unit of risk. Earth Tech Environment is currently generating about 0.01 per unit of risk. If you would invest  4,356  in Global Power Synergy on September 5, 2024 and sell it today you would earn a total of  94.00  from holding Global Power Synergy or generate 2.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Global Power Synergy  vs.  Earth Tech Environment

Global Power Synergy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Global Power Synergy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Global Power is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Earth Tech Environment

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Global Power and Earth Tech

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

The idea behind Global Power Synergy and Earth Tech Environment 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.