Correlation Between Power Fi and Great West

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

By analyzing existing cross correlation between Power Fi 440 and Great West 365, you can compare the effects of market volatilities on Power Fi and Great West 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 Power Fi with a short position of Great West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power Fi and Great West.

Diversification Opportunities for Power Fi and Great West

0.74

Correlation Coefficient

Power Fi  Great West

Poor diversification

The 3 months correlation between Power and Great is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Power Fi 440 and Great West 365 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West 365 and Power Fi 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 Power Fi 440 are associated (or correlated) with Great West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West 365 has no effect on the direction of Power Fi i.e., Power Fi and Great West go up and down completely randomly.

Pair Corralation between Power Fi and Great West

Assuming the 90 days trading horizon Power Fi is expected to generate 1.11 times less return on investment than Great West. But when comparing it to its historical volatility, Power Fi 440 is 1.02 times less risky than Great West. It trades about 0.07 of its potential returns per unit of risk. Great West 365 is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,470  in Great West 365 on September 5, 2024 and sell it today you would earn a total of  56.00  from holding Great West 365 or generate 3.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Power Fi 440  vs.  Great West 365

Power Fi 440

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Power Fi 440 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Power Fi is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Great West 365

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Great West 365 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Great West is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Power Fi and Great West

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

The idea behind Power Fi 440 and Great West 365 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.