Correlation Between ITT and CSW Industrials
Can any of the company-specific risk be diversified away by investing in both ITT and CSW Industrials 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 ITT and CSW Industrials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ITT Inc and CSW Industrials, you can compare the effects of market volatilities on ITT and CSW Industrials 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 ITT with a short position of CSW Industrials. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITT and CSW Industrials.
Diversification Opportunities for ITT and CSW Industrials
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between ITT and CSW is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding ITT Inc and CSW Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSW Industrials and ITT 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 ITT Inc are associated (or correlated) with CSW Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSW Industrials has no effect on the direction of ITT i.e., ITT and CSW Industrials go up and down completely randomly.
Pair Corralation between ITT and CSW Industrials
Considering the 90-day investment horizon ITT is expected to generate 1.56 times less return on investment than CSW Industrials. But when comparing it to its historical volatility, ITT Inc is 1.25 times less risky than CSW Industrials. It trades about 0.28 of its potential returns per unit of risk. CSW Industrials is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 36,705 in CSW Industrials on August 26, 2024 and sell it today you would earn a total of 5,961 from holding CSW Industrials or generate 16.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
ITT Inc vs. CSW Industrials
Performance |
| Timeline |
| ITT Inc |
| CSW Industrials |
ITT and CSW Industrials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ITT and CSW Industrials
The main advantage of trading using opposite ITT and CSW Industrials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITT position performs unexpectedly, CSW Industrials 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 CSW Industrials will offset losses from the drop in CSW Industrials' long position.The idea behind ITT Inc and CSW Industrials 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.| CSW Industrials vs. Enerpac Tool Group | CSW Industrials vs. Luxfer Holdings PLC | CSW Industrials vs. John Bean Technologies | CSW Industrials vs. ITT Inc |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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