Correlation Between Barnes and Hillenbrand

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

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

Diversification Opportunities for Barnes and Hillenbrand

0.66

Correlation Coefficient

Barnes  Hillenbrand

Poor diversification

The 3 months correlation between Barnes and Hillenbrand is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Barnes Group and Hillenbrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hillenbrand and Barnes 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 Barnes Group are associated (or correlated) with Hillenbrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hillenbrand has no effect on the direction of Barnes i.e., Barnes and Hillenbrand go up and down completely randomly.

Pair Corralation between Barnes and Hillenbrand

Taking into account the 90-day investment horizon Barnes Group is expected to generate 1.14 times more return on investment than Hillenbrand. However, Barnes is 1.14 times more volatile than Hillenbrand. It trades about 0.24 of its potential returns per unit of risk. Hillenbrand is currently generating about 0.13 per unit of risk. If you would invest  1,993  in Barnes Group on January 25, 2024 and sell it today you would earn a total of  1,633  from holding Barnes Group or generate 81.94% return on investment over 90 days.

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

Barnes Group  vs.  Hillenbrand

Barnes Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barnes Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal fundamental drivers, Barnes sustained solid returns over the last few months and may actually be approaching a breakup point.

Hillenbrand

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hillenbrand are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain forward indicators, Hillenbrand may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Barnes and Hillenbrand

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

The idea behind Barnes Group and Hillenbrand 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.