Correlation Between IDEX and Xylem
Can any of the company-specific risk be diversified away by investing in both IDEX 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 IDEX and Xylem into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IDEX Corporation and Xylem Inc, you can compare the effects of market volatilities on IDEX 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 IDEX with a short position of Xylem. Check out your portfolio center. Please also check ongoing floating volatility patterns of IDEX and Xylem.
Diversification Opportunities for IDEX and Xylem
Excellent diversification
The 3 months correlation between IDEX and Xylem is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding IDEX Corp. and Xylem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xylem Inc and IDEX 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 IDEX Corporation 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 IDEX i.e., IDEX and Xylem go up and down completely randomly.
Pair Corralation between IDEX and Xylem
Considering the 90-day investment horizon IDEX is expected to generate 2.87 times less return on investment than Xylem. But when comparing it to its historical volatility, IDEX Corporation is 1.04 times less risky than Xylem. It trades about 0.02 of its potential returns per unit of risk. Xylem Inc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 10,188 in Xylem Inc on August 27, 2024 and sell it today you would earn a total of 2,499 from holding Xylem Inc or generate 24.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
IDEX Corp. vs. Xylem Inc
Performance |
| Timeline |
| IDEX |
| Xylem Inc |
IDEX and Xylem Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IDEX and Xylem
The main advantage of trading using opposite IDEX and Xylem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IDEX 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 IDEX Corporation 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.| Xylem vs. Aquagold International | Xylem vs. Morningstar Unconstrained Allocation | Xylem vs. High Yield Municipal Fund | Xylem vs. Thrivent High Yield |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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