Correlation Between Xylem and Rockwell Automation
Can any of the company-specific risk be diversified away by investing in both Xylem and Rockwell Automation 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 Xylem and Rockwell Automation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xylem Inc and Rockwell Automation, you can compare the effects of market volatilities on Xylem and Rockwell Automation 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 Xylem with a short position of Rockwell Automation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xylem and Rockwell Automation.
Diversification Opportunities for Xylem and Rockwell Automation
-0.41 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Xylem and Rockwell is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Xylem Inc and Rockwell Automation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rockwell Automation and Xylem 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 Xylem Inc are associated (or correlated) with Rockwell Automation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rockwell Automation has no effect on the direction of Xylem i.e., Xylem and Rockwell Automation go up and down completely randomly.
Pair Corralation between Xylem and Rockwell Automation
Considering the 90-day investment horizon Xylem Inc is expected to under-perform the Rockwell Automation. But the stock apears to be less risky and, when comparing its historical volatility, Xylem Inc is 1.36 times less risky than Rockwell Automation. The stock trades about -0.05 of its potential returns per unit of risk. The Rockwell Automation is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 25,617 in Rockwell Automation on August 24, 2024 and sell it today you would earn a total of 2,213 from holding Rockwell Automation or generate 8.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Xylem Inc vs. Rockwell Automation
Performance |
| Timeline |
| Xylem Inc |
| Rockwell Automation |
Xylem and Rockwell Automation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Xylem and Rockwell Automation
The main advantage of trading using opposite Xylem and Rockwell Automation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xylem position performs unexpectedly, Rockwell Automation 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 Rockwell Automation will offset losses from the drop in Rockwell Automation's long position.The idea behind Xylem Inc and Rockwell Automation 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.| Rockwell Automation vs. Dover | Rockwell Automation vs. Illinois Tool Works | Rockwell Automation vs. Ingersoll Rand | Rockwell Automation vs. Eaton PLC |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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