Correlation Between Advanced Energy and Encore Wire
Can any of the company-specific risk be diversified away by investing in both Advanced Energy and Encore Wire 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 Encore Wire 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 Encore Wire, you can compare the effects of market volatilities on Advanced Energy and Encore Wire 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 Encore Wire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advanced Energy and Encore Wire.
Diversification Opportunities for Advanced Energy and Encore Wire
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between Advanced and Encore is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Energy Industries and Encore Wire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Encore Wire 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 Encore Wire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Encore Wire has no effect on the direction of Advanced Energy i.e., Advanced Energy and Encore Wire go up and down completely randomly.
Pair Corralation between Advanced Energy and Encore Wire
Given the investment horizon of 90 days Advanced Energy is expected to generate 2.53 times less return on investment than Encore Wire. In addition to that, Advanced Energy is 3.22 times more volatile than Encore Wire. It trades about 0.03 of its total potential returns per unit of risk. Encore Wire is currently generating about 0.22 per unit of volatility. If you would invest 27,787 in Encore Wire on August 24, 2024 and sell it today you would earn a total of 1,197 from holding Encore Wire or generate 4.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 20.8% |
| Values | Daily Returns |
Advanced Energy Industries vs. Encore Wire
Performance |
| Timeline |
| Advanced Energy Indu |
| Encore Wire |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Advanced Energy and Encore Wire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Advanced Energy and Encore Wire
The main advantage of trading using opposite Advanced Energy and Encore Wire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Advanced Energy position performs unexpectedly, Encore Wire 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 Encore Wire will offset losses from the drop in Encore Wire's long position.| Advanced Energy vs. MKS Instruments | Advanced Energy vs. Axcelis Technologies | Advanced Energy vs. Entegris | Advanced Energy vs. Cohu Inc |
| Encore Wire vs. Advanced Energy Industries | Encore Wire vs. Acuity Brands | Encore Wire vs. Enersys | Encore Wire vs. nVent Electric PLC |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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