Correlation Between Fuel Tech and Energy Recovery

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

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

Diversification Opportunities for Fuel Tech and Energy Recovery

-0.33

Correlation Coefficient

Fuel Tech  Energy Recovery

Very good diversification

The 3 months correlation between Fuel and Energy is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Fuel Tech and Energy Recovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Recovery and Fuel Tech 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 Fuel Tech are associated (or correlated) with Energy Recovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Recovery has no effect on the direction of Fuel Tech i.e., Fuel Tech and Energy Recovery go up and down completely randomly.

Pair Corralation between Fuel Tech and Energy Recovery

Given the investment horizon of 90 days Fuel Tech is expected to generate 0.59 times more return on investment than Energy Recovery. However, Fuel Tech is 1.68 times less risky than Energy Recovery. It trades about 0.0 of its potential returns per unit of risk. Energy Recovery is currently generating about -0.11 per unit of risk. If you would invest  103.00  in Fuel Tech on September 14, 2024 and sell it today you would lose (1.00) from holding Fuel Tech or give up 0.97% of portfolio value over 90 days.

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

Fuel Tech  vs.  Energy Recovery

Fuel Tech

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Fuel Tech has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Fuel Tech is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Energy Recovery

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Recovery are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain forward indicators, Energy Recovery may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fuel Tech and Energy Recovery

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

The idea behind Fuel Tech and Energy Recovery 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.