Correlation Between Advanced Energy and Espey Mfg

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

By analyzing existing cross correlation between Advanced Energy Industries and Espey Mfg Electronics, you can compare the effects of market volatilities on Advanced Energy and Espey Mfg 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 Advanced Energy with a short position of Espey Mfg. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Energy and Espey Mfg.

Diversification Opportunities for Advanced Energy and Espey Mfg

-0.16

Correlation Coefficient

Advanced Energy  Espey Mfg

Good diversification

The 3 months correlation between Advanced and Espey is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Industries and Espey Mfg Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Espey Mfg Electronics and Advanced Energy 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 Advanced Energy Industries are associated (or correlated) with Espey Mfg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Espey Mfg Electronics has no effect on the direction of Advanced Energy i.e., Advanced Energy and Espey Mfg go up and down completely randomly.

Pair Corralation between Advanced Energy and Espey Mfg

Given the investment horizon of 90 days Advanced Energy Industries is expected to generate 0.8 times more return on investment than Espey Mfg. However, Advanced Energy Industries is 1.25 times less risky than Espey Mfg. It trades about 0.1 of its potential returns per unit of risk. Espey Mfg Electronics is currently generating about -0.11 per unit of risk. If you would invest  9,864  in Advanced Energy Industries on February 26, 2024 and sell it today you would earn a total of  1,082  from holding Advanced Energy Industries or generate 10.97% return on investment over 90 days.

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

Advanced Energy Industries  vs.  Espey Mfg Electronics

Advanced Energy Indu

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Energy Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, Advanced Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Espey Mfg Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Espey Mfg Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Advanced Energy and Espey Mfg

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

The idea behind Advanced Energy Industries and Espey Mfg Electronics 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.