Correlation Between Donaldson and CVD Equipment

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

By analyzing existing cross correlation between Donaldson and CVD Equipment, you can compare the effects of market volatilities on Donaldson and CVD Equipment 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 CVD Equipment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Donaldson and CVD Equipment.

Diversification Opportunities for Donaldson and CVD Equipment

0.19

Correlation Coefficient

Donaldson  CVD Equipment

Average diversification

The 3 months correlation between Donaldson and CVD is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Donaldson and CVD Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVD Equipment 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 CVD Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVD Equipment has no effect on the direction of Donaldson i.e., Donaldson and CVD Equipment go up and down completely randomly.

Pair Corralation between Donaldson and CVD Equipment

Considering the 90-day investment horizon Donaldson is expected to under-perform the CVD Equipment. But the stock apears to be less risky and, when comparing its historical volatility, Donaldson is 8.88 times less risky than CVD Equipment. The stock trades about -0.16 of its potential returns per unit of risk. The CVD Equipment is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  476.00  in CVD Equipment on January 26, 2024 and sell it today you would lose (20.02) from holding CVD Equipment or give up 4.21% of portfolio value over 90 days.

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

Donaldson  vs.  CVD Equipment

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.

CVD Equipment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVD Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, CVD Equipment is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Donaldson and CVD Equipment

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

The idea behind Donaldson and CVD Equipment 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.

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.