Correlation Between Watts Water and Standex International
Can any of the company-specific risk be diversified away by investing in both Watts Water and Standex International 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 Watts Water and Standex International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Watts Water Technologies and Standex International, you can compare the effects of market volatilities on Watts Water and Standex International 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 Watts Water with a short position of Standex International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Watts Water and Standex International.
Diversification Opportunities for Watts Water and Standex International
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Watts and Standex is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Watts Water Technologies and Standex International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standex International and Watts Water 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 Watts Water Technologies are associated (or correlated) with Standex International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standex International has no effect on the direction of Watts Water i.e., Watts Water and Standex International go up and down completely randomly.
Pair Corralation between Watts Water and Standex International
Considering the 90-day investment horizon Watts Water is expected to generate 1.97 times less return on investment than Standex International. But when comparing it to its historical volatility, Watts Water Technologies is 1.19 times less risky than Standex International. It trades about 0.05 of its potential returns per unit of risk. Standex International is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 10,108 in Standex International on August 31, 2024 and sell it today you would earn a total of 10,648 from holding Standex International or generate 105.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Watts Water Technologies vs. Standex International
Performance |
| Timeline |
| Watts Water Technologies |
| Standex International |
Watts Water and Standex International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Watts Water and Standex International
The main advantage of trading using opposite Watts Water and Standex International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Watts Water position performs unexpectedly, Standex International 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 Standex International will offset losses from the drop in Standex International's long position.| Watts Water vs. Standex International | Watts Water vs. Donaldson | Watts Water vs. CSW Industrials | Watts Water vs. Franklin Electric Co |
| Standex International vs. Gorman Rupp | Standex International vs. Franklin Electric Co | Standex International vs. Omega Flex | Standex International vs. China Yuchai International |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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