Correlation Between Smith AO and Flowserve
Can any of the company-specific risk be diversified away by investing in both Smith AO and Flowserve 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 Smith AO and Flowserve into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smith AO and Flowserve, you can compare the effects of market volatilities on Smith AO and Flowserve 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 Smith AO with a short position of Flowserve. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith AO and Flowserve.
Diversification Opportunities for Smith AO and Flowserve
Very good diversification
The 3 months correlation between Smith and Flowserve is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Smith AO and Flowserve in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flowserve and Smith AO 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 Smith AO are associated (or correlated) with Flowserve. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flowserve has no effect on the direction of Smith AO i.e., Smith AO and Flowserve go up and down completely randomly.
Pair Corralation between Smith AO and Flowserve
Considering the 90-day investment horizon Smith AO is expected to under-perform the Flowserve. But the stock apears to be less risky and, when comparing its historical volatility, Smith AO is 1.43 times less risky than Flowserve. The stock trades about -0.12 of its potential returns per unit of risk. The Flowserve is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 5,373 in Flowserve on October 20, 2024 and sell it today you would earn a total of 977.00 from holding Flowserve or generate 18.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smith AO vs. Flowserve
Performance |
| Timeline |
| Smith AO |
| Flowserve |
Smith AO and Flowserve Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smith AO and Flowserve
The main advantage of trading using opposite Smith AO and Flowserve positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith AO position performs unexpectedly, Flowserve 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 Flowserve will offset losses from the drop in Flowserve's long position.| Smith AO vs. Dover | Smith AO vs. Illinois Tool Works | Smith AO vs. Xylem Inc | Smith AO vs. Franklin Electric Co |
| Flowserve vs. IDEX Corporation | Flowserve vs. Donaldson | Flowserve vs. Ingersoll Rand | Flowserve vs. Franklin Electric Co |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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