Correlation Between Hubbell and Ocean Power

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

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

Diversification Opportunities for Hubbell and Ocean Power

0.8

Correlation Coefficient

Hubbell  Ocean Power

Very poor diversification

The 3 months correlation between Hubbell and Ocean is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Hubbell and Ocean Power Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ocean Power Technologies and Hubbell 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 Hubbell are associated (or correlated) with Ocean Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ocean Power Technologies has no effect on the direction of Hubbell i.e., Hubbell and Ocean Power go up and down completely randomly.

Pair Corralation between Hubbell and Ocean Power

Given the investment horizon of 90 days Hubbell is expected to under-perform the Ocean Power. But the stock apears to be less risky and, when comparing its historical volatility, Hubbell is 3.27 times less risky than Ocean Power. The stock trades about -0.08 of its potential returns per unit of risk. The Ocean Power Technologies is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Ocean Power Technologies on March 28, 2024 and sell it today you would lose (2.00) from holding Ocean Power Technologies or give up 10.0% of portfolio value over 90 days.

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

Hubbell  vs.  Ocean Power Technologies

Hubbell

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hubbell has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Ocean Power Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ocean Power Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in July 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Hubbell and Ocean Power

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

The idea behind Hubbell and Ocean Power Technologies 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.