Correlation Between Applied Industrial and DXP Enterprises
Can any of the company-specific risk be diversified away by investing in both Applied Industrial and DXP Enterprises 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 Applied Industrial and DXP Enterprises into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Industrial Technologies and DXP Enterprises, you can compare the effects of market volatilities on Applied Industrial and DXP Enterprises 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 Applied Industrial with a short position of DXP Enterprises. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Industrial and DXP Enterprises.
Diversification Opportunities for Applied Industrial and DXP Enterprises
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Applied and DXP is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Applied Industrial Technologie and DXP Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DXP Enterprises and Applied Industrial 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 Applied Industrial Technologies are associated (or correlated) with DXP Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DXP Enterprises has no effect on the direction of Applied Industrial i.e., Applied Industrial and DXP Enterprises go up and down completely randomly.
Pair Corralation between Applied Industrial and DXP Enterprises
Considering the 90-day investment horizon Applied Industrial Technologies is expected to under-perform the DXP Enterprises. But the stock apears to be less risky and, when comparing its historical volatility, Applied Industrial Technologies is 1.89 times less risky than DXP Enterprises. The stock trades about -0.33 of its potential returns per unit of risk. The DXP Enterprises is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest 5,211 in DXP Enterprises on January 24, 2024 and sell it today you would lose (206.00) from holding DXP Enterprises or give up 3.95% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Applied Industrial Technologie vs. DXP Enterprises
Performance |
Timeline |
Applied Industrial |
DXP Enterprises |
Applied Industrial and DXP Enterprises Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Applied Industrial and DXP Enterprises
The main advantage of trading using opposite Applied Industrial and DXP Enterprises positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Industrial position performs unexpectedly, DXP Enterprises 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 DXP Enterprises will offset losses from the drop in DXP Enterprises' long position.Applied Industrial vs. Core Main | Applied Industrial vs. WW Grainger | Applied Industrial vs. DXP Enterprises | Applied Industrial vs. SiteOne Landscape Supply |
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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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