Correlation Between NVent Electric and Enersys

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

By analyzing existing cross correlation between nVent Electric PLC and Enersys, you can compare the effects of market volatilities on NVent Electric and Enersys 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 NVent Electric with a short position of Enersys. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVent Electric and Enersys.

Diversification Opportunities for NVent Electric and Enersys

0.08

Correlation Coefficient

NVent Electric  Enersys

Significant diversification

The 3 months correlation between NVent and Enersys is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding nVent Electric PLC and Enersys in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enersys and NVent Electric 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 nVent Electric PLC are associated (or correlated) with Enersys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enersys has no effect on the direction of NVent Electric i.e., NVent Electric and Enersys go up and down completely randomly.

Pair Corralation between NVent Electric and Enersys

Considering the 90-day investment horizon nVent Electric PLC is expected to generate 1.06 times more return on investment than Enersys. However, NVent Electric is 1.06 times more volatile than Enersys. It trades about 0.08 of its potential returns per unit of risk. Enersys is currently generating about 0.04 per unit of risk. If you would invest  3,865  in nVent Electric PLC on August 31, 2024 and sell it today you would earn a total of  3,789  from holding nVent Electric PLC or generate 98.03% return on investment over 90 days.

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

nVent Electric PLC  vs.  Enersys

nVent Electric PLC

Risk-Adjusted Performance

11 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in nVent Electric PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, NVent Electric unveiled solid returns over the last few months and may actually be approaching a breakup point.

Enersys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enersys has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Enersys is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with NVent Electric and Enersys

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

The idea behind nVent Electric PLC and Enersys 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.