Correlation Between Gates Industrial and Donaldson
Can any of the company-specific risk be diversified away by investing in both Gates Industrial and Donaldson 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 Gates Industrial and Donaldson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gates Industrial and Donaldson, you can compare the effects of market volatilities on Gates Industrial and Donaldson 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 Gates Industrial with a short position of Donaldson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gates Industrial and Donaldson.
Diversification Opportunities for Gates Industrial and Donaldson
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Gates and Donaldson is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Gates Industrial and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson and Gates Industrial 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 Gates Industrial are associated (or correlated) with Donaldson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donaldson has no effect on the direction of Gates Industrial i.e., Gates Industrial and Donaldson go up and down completely randomly.
Pair Corralation between Gates Industrial and Donaldson
Given the investment horizon of 90 days Gates Industrial is expected to generate 1.7 times more return on investment than Donaldson. However, Gates Industrial is 1.7 times more volatile than Donaldson. It trades about 0.41 of its potential returns per unit of risk. Donaldson is currently generating about 0.27 per unit of risk. If you would invest 1,930 in Gates Industrial on August 31, 2024 and sell it today you would earn a total of 282.00 from holding Gates Industrial or generate 14.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Gates Industrial vs. Donaldson
Performance |
| Timeline |
| Gates Industrial |
| Donaldson |
Gates Industrial and Donaldson Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gates Industrial and Donaldson
The main advantage of trading using opposite Gates Industrial and Donaldson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gates Industrial position performs unexpectedly, Donaldson 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 Donaldson will offset losses from the drop in Donaldson's long position.| Gates Industrial vs. Crane NXT Co | Gates Industrial vs. Donaldson | Gates Industrial vs. ITT Inc | Gates Industrial vs. Franklin Electric Co |
| Donaldson vs. Flowserve | Donaldson vs. Franklin Electric Co | Donaldson vs. Watts Water Technologies | Donaldson vs. Gorman Rupp |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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