Correlation Between Ocean Power and Energy Services

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

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

Diversification Opportunities for Ocean Power and Energy Services

0.65

Correlation Coefficient

Ocean Power  Energy Services

Poor diversification

The 3 months correlation between Ocean and Energy is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Ocean Power Technologies and Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Services and Ocean 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 Ocean Power Technologies 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 Ocean Power i.e., Ocean Power and Energy Services go up and down completely randomly.

Pair Corralation between Ocean Power and Energy Services

Given the investment horizon of 90 days Ocean Power Technologies is expected to generate 3.24 times more return on investment than Energy Services. However, Ocean Power is 3.24 times more volatile than Energy Services. It trades about 0.15 of its potential returns per unit of risk. Energy Services is currently generating about 0.22 per unit of risk. If you would invest  16.00  in Ocean Power Technologies on September 25, 2024 and sell it today you would earn a total of  17.00  from holding Ocean Power Technologies or generate 106.25% return on investment over 90 days.

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

Ocean Power Technologies  vs.  Energy Services

Ocean Power Technologies

Risk-Adjusted Performance

11 of 100

OK

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

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 Ocean Power and Energy Services

The main advantage of trading using opposite Ocean Power and Energy Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ocean Power 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 Ocean Power Technologies 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..