Correlation Between Smith AO and Kadant
Can any of the company-specific risk be diversified away by investing in both Smith AO and Kadant 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 Kadant into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smith AO and Kadant Inc, you can compare the effects of market volatilities on Smith AO and Kadant 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 Kadant. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith AO and Kadant.
Diversification Opportunities for Smith AO and Kadant
Poor diversification
The 3 months correlation between Smith and Kadant is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Smith AO and Kadant Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kadant Inc 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 Kadant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kadant Inc has no effect on the direction of Smith AO i.e., Smith AO and Kadant go up and down completely randomly.
Pair Corralation between Smith AO and Kadant
Considering the 90-day investment horizon Smith AO is expected to under-perform the Kadant. But the stock apears to be less risky and, when comparing its historical volatility, Smith AO is 2.11 times less risky than Kadant. The stock trades about -0.3 of its potential returns per unit of risk. The Kadant Inc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 36,703 in Kadant Inc on November 18, 2024 and sell it today you would earn a total of 2,143 from holding Kadant Inc or generate 5.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smith AO vs. Kadant Inc
Performance |
| Timeline |
| Smith AO |
| Kadant Inc |
Smith AO and Kadant Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smith AO and Kadant
The main advantage of trading using opposite Smith AO and Kadant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith AO position performs unexpectedly, Kadant 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 Kadant will offset losses from the drop in Kadant's long position.| Smith AO vs. Dover | Smith AO vs. Illinois Tool Works | Smith AO vs. Xylem Inc | Smith AO 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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