Correlation Between Primoris Services and Xylem

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

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

Diversification Opportunities for Primoris Services and Xylem

0.88

Correlation Coefficient

Primoris Services  Xylem

Very poor diversification

The 3 months correlation between Primoris and Xylem is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Primoris Services and Xylem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xylem Inc and Primoris Services 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 Primoris Services are associated (or correlated) with Xylem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xylem Inc has no effect on the direction of Primoris Services i.e., Primoris Services and Xylem go up and down completely randomly.

Pair Corralation between Primoris Services and Xylem

Given the investment horizon of 90 days Primoris Services is expected to generate 3.02 times more return on investment than Xylem. However, Primoris Services is 3.02 times more volatile than Xylem Inc. It trades about 0.19 of its potential returns per unit of risk. Xylem Inc is currently generating about 0.14 per unit of risk. If you would invest  4,114  in Primoris Services on January 26, 2024 and sell it today you would earn a total of  387.00  from holding Primoris Services or generate 9.41% return on investment over 90 days.

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

Primoris Services  vs.  Xylem Inc

Primoris Services

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Primoris Services are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, Primoris Services displayed solid returns over the last few months and may actually be approaching a breakup point.

Xylem Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xylem Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Xylem disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Primoris Services and Xylem

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

The idea behind Primoris Services and Xylem Inc 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.