Correlation Between Dover and IDEX
Can any of the company-specific risk be diversified away by investing in both Dover and IDEX 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 Dover and IDEX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dover and IDEX Corporation, you can compare the effects of market volatilities on Dover and IDEX 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 Dover with a short position of IDEX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dover and IDEX.
Diversification Opportunities for Dover and IDEX
Almost no diversification
The 3 months correlation between Dover and IDEX is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Dover and IDEX Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDEX and Dover 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 Dover are associated (or correlated) with IDEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDEX has no effect on the direction of Dover i.e., Dover and IDEX go up and down completely randomly.
Pair Corralation between Dover and IDEX
Considering the 90-day investment horizon Dover is expected to generate 1.1 times less return on investment than IDEX. But when comparing it to its historical volatility, Dover is 1.04 times less risky than IDEX. It trades about 0.12 of its potential returns per unit of risk. IDEX Corporation is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 20,328 in IDEX Corporation on August 24, 2024 and sell it today you would earn a total of 2,417 from holding IDEX Corporation or generate 11.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dover vs. IDEX Corp.
Performance |
| Timeline |
| Dover |
| IDEX |
Dover and IDEX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dover and IDEX
The main advantage of trading using opposite Dover and IDEX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dover position performs unexpectedly, IDEX 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 IDEX will offset losses from the drop in IDEX's long position.The idea behind Dover and IDEX Corporation 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.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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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