Correlation Between Kadant and ITT
Can any of the company-specific risk be diversified away by investing in both Kadant and ITT 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 Kadant and ITT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kadant Inc and ITT Inc, you can compare the effects of market volatilities on Kadant and ITT 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 Kadant with a short position of ITT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kadant and ITT.
Diversification Opportunities for Kadant and ITT
Poor diversification
The 3 months correlation between Kadant and ITT is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Kadant Inc and ITT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITT Inc and Kadant 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 Kadant Inc are associated (or correlated) with ITT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITT Inc has no effect on the direction of Kadant i.e., Kadant and ITT go up and down completely randomly.
Pair Corralation between Kadant and ITT
Considering the 90-day investment horizon Kadant Inc is expected to generate 1.37 times more return on investment than ITT. However, Kadant is 1.37 times more volatile than ITT Inc. It trades about 0.58 of its potential returns per unit of risk. ITT Inc is currently generating about 0.28 per unit of risk. If you would invest 31,645 in Kadant Inc on August 26, 2024 and sell it today you would earn a total of 10,256 from holding Kadant Inc or generate 32.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kadant Inc vs. ITT Inc
Performance |
| Timeline |
| Kadant Inc |
| ITT Inc |
Kadant and ITT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kadant and ITT
The main advantage of trading using opposite Kadant and ITT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kadant position performs unexpectedly, ITT 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 ITT will offset losses from the drop in ITT's long position.The idea behind Kadant Inc and ITT 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.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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