Correlation Between Fortive Corp and Electro Sensors

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Can any of the company-specific risk be diversified away by investing in both Fortive Corp and Electro Sensors 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 Fortive Corp and Electro Sensors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fortive Corp and Electro Sensors, you can compare the effects of market volatilities on Fortive Corp and Electro Sensors 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 Fortive Corp with a short position of Electro Sensors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortive Corp and Electro Sensors.

Diversification Opportunities for Fortive Corp and Electro Sensors

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Fortive and Electro is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Fortive Corp and Electro-Sensors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electro-Sensors and Fortive 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 Fortive Corp are associated (or correlated) with Electro Sensors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electro-Sensors has no effect on the direction of Fortive Corp i.e., Fortive Corp and Electro Sensors go up and down completely randomly.

Pair Corralation between Fortive Corp and Electro Sensors

Considering the 90-day investment horizon Fortive Corp is expected to generate 0.66 times more return on investment than Electro Sensors. However, Fortive Corp is 1.51 times less risky than Electro Sensors. It trades about 0.07 of its potential returns per unit of risk. Electro Sensors is currently generating about -0.01 per unit of risk. If you would invest  6,689  in Fortive Corp on December 20, 2023 and sell it today you would earn a total of  1,833  from holding Fortive Corp or generate 27.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.31%
ValuesDaily Returns

Fortive Corp  vs.  Electro-Sensors

 Performance 
       Timeline  
Fortive Corp 

Risk-Adjusted Performance

19 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Fortive Corp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Fortive Corp showed solid returns over the last few months and may actually be approaching a breakup point.
Electro-Sensors 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Electro Sensors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Electro Sensors may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Fortive Corp and Electro Sensors Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fortive Corp and Electro Sensors

The main advantage of trading using opposite Fortive Corp and Electro Sensors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortive Corp position performs unexpectedly, Electro Sensors 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 Electro Sensors will offset losses from the drop in Electro Sensors' long position.
The idea behind Fortive Corp and Electro Sensors 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.

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