Correlation Between Analog Devices and CECO Environmental

Can any of the company-specific risk be diversified away by investing in both Analog Devices and CECO Environmental 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 Analog Devices and CECO Environmental into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Analog Devices and CECO Environmental Corp, you can compare the effects of market volatilities on Analog Devices and CECO Environmental 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 Analog Devices with a short position of CECO Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Analog Devices and CECO Environmental.

Diversification Opportunities for Analog Devices and CECO Environmental

-0.15

Correlation Coefficient

Analog Devices  CECO Environmental

Good diversification

The 3 months correlation between Analog and CECO is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and CECO Environmental Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CECO Environmental Corp and Analog Devices 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 Analog Devices are associated (or correlated) with CECO Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CECO Environmental Corp has no effect on the direction of Analog Devices i.e., Analog Devices and CECO Environmental go up and down completely randomly.

Pair Corralation between Analog Devices and CECO Environmental

Considering the 90-day investment horizon Analog Devices is expected to generate 3.59 times less return on investment than CECO Environmental. But when comparing it to its historical volatility, Analog Devices is 1.69 times less risky than CECO Environmental. It trades about 0.04 of its potential returns per unit of risk. CECO Environmental Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,235  in CECO Environmental Corp on September 3, 2024 and sell it today you would earn a total of  1,970  from holding CECO Environmental Corp or generate 159.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Analog Devices  vs.  CECO Environmental Corp

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

CECO Environmental Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CECO Environmental Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, CECO Environmental displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Analog Devices and CECO Environmental

The main advantage of trading using opposite Analog Devices and CECO Environmental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Analog Devices position performs unexpectedly, CECO Environmental 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 CECO Environmental will offset losses from the drop in CECO Environmental's long position.

The idea behind Analog Devices and CECO Environmental Corp 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.