Correlation Between Donaldson and American Superconductor

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

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

Diversification Opportunities for Donaldson and American Superconductor

0.42

Correlation Coefficient

Donaldson  American Superconductor

Very weak diversification

The 3 months correlation between Donaldson and American is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Donaldson and American Superconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Superconductor and Donaldson 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 Donaldson are associated (or correlated) with American Superconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Superconductor has no effect on the direction of Donaldson i.e., Donaldson and American Superconductor go up and down completely randomly.

Pair Corralation between Donaldson and American Superconductor

Considering the 90-day investment horizon Donaldson is expected to generate 0.25 times more return on investment than American Superconductor. However, Donaldson is 4.08 times less risky than American Superconductor. It trades about -0.16 of its potential returns per unit of risk. American Superconductor is currently generating about -0.14 per unit of risk. If you would invest  7,408  in Donaldson on January 26, 2024 and sell it today you would lose (160.00) from holding Donaldson or give up 2.16% of portfolio value over 90 days.

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

Donaldson  vs.  American Superconductor

Donaldson

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Donaldson are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent fundamental indicators, Donaldson demonstrated solid returns over the last few months and may actually be approaching a breakup point.

American Superconductor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Superconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Donaldson and American Superconductor

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

The idea behind Donaldson and American Superconductor 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.