Correlation Between ESAB Corp and Mayville Engineering

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

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

Diversification Opportunities for ESAB Corp and Mayville Engineering

0.54

Correlation Coefficient

ESAB Corp  Mayville Engineering

Very weak diversification

The 3 months correlation between ESAB and Mayville is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding ESAB Corp and Mayville Engineering Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mayville Engineering and ESAB Corp 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 ESAB Corp are associated (or correlated) with Mayville Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mayville Engineering has no effect on the direction of ESAB Corp i.e., ESAB Corp and Mayville Engineering go up and down completely randomly.

Pair Corralation between ESAB Corp and Mayville Engineering

Given the investment horizon of 90 days ESAB Corp is expected to generate 0.6 times more return on investment than Mayville Engineering. However, ESAB Corp is 1.67 times less risky than Mayville Engineering. It trades about -0.02 of its potential returns per unit of risk. Mayville Engineering Co is currently generating about -0.12 per unit of risk. If you would invest  10,644  in ESAB Corp on January 20, 2024 and sell it today you would lose (65.00) from holding ESAB Corp or give up 0.61% of portfolio value over 90 days.

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

ESAB Corp  vs.  Mayville Engineering Co

ESAB Corp

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ESAB Corp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, ESAB Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Mayville Engineering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mayville Engineering Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Mayville Engineering is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ESAB Corp and Mayville Engineering

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

The idea behind ESAB Corp and Mayville Engineering Co 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.