Correlation Between Westport Fuel and Ballard Power

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

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

Diversification Opportunities for Westport Fuel and Ballard Power

0.5

Correlation Coefficient

Westport Fuel  Ballard Power

Very weak diversification

The 3 months correlation between Westport and Ballard is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Westport Fuel Systems and Ballard Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ballard Power Systems and Westport Fuel 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 Westport Fuel Systems are associated (or correlated) with Ballard Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ballard Power Systems has no effect on the direction of Westport Fuel i.e., Westport Fuel and Ballard Power go up and down completely randomly.

Pair Corralation between Westport Fuel and Ballard Power

Assuming the 90 days trading horizon Westport Fuel Systems is expected to under-perform the Ballard Power. But the stock apears to be less risky and, when comparing its historical volatility, Westport Fuel Systems is 2.22 times less risky than Ballard Power. The stock trades about -0.15 of its potential returns per unit of risk. The Ballard Power Systems is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  238.00  in Ballard Power Systems on August 31, 2024 and sell it today you would lose (34.00) from holding Ballard Power Systems or give up 14.29% of portfolio value over 90 days.

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

Westport Fuel Systems  vs.  Ballard Power Systems

Westport Fuel Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westport Fuel Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Ballard Power Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ballard Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Westport Fuel and Ballard Power

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

The idea behind Westport Fuel Systems and Ballard Power Systems 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.