Correlation Between Applied Industrial and Ferguson Plc

Can any of the company-specific risk be diversified away by investing in both Applied Industrial and Ferguson Plc 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 Applied Industrial and Ferguson Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Applied Industrial Technologies and Ferguson Plc, you can compare the effects of market volatilities on Applied Industrial and Ferguson Plc 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 Applied Industrial with a short position of Ferguson Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Industrial and Ferguson Plc.

Diversification Opportunities for Applied Industrial and Ferguson Plc

0.91

Correlation Coefficient

Applied Industrial  Ferguson Plc

Almost no diversification

The 3 months correlation between Applied and Ferguson is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Applied Industrial Technologie and Ferguson Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferguson Plc and Applied Industrial 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 Applied Industrial Technologies are associated (or correlated) with Ferguson Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferguson Plc has no effect on the direction of Applied Industrial i.e., Applied Industrial and Ferguson Plc go up and down completely randomly.

Pair Corralation between Applied Industrial and Ferguson Plc

Considering the 90-day investment horizon Applied Industrial Technologies is expected to generate 1.2 times more return on investment than Ferguson Plc. However, Applied Industrial is 1.2 times more volatile than Ferguson Plc. It trades about -0.04 of its potential returns per unit of risk. Ferguson Plc is currently generating about -0.07 per unit of risk. If you would invest  23,824  in Applied Industrial Technologies on December 29, 2024 and sell it today you would lose (1,271) from holding Applied Industrial Technologies or give up 5.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Applied Industrial Technologie  vs.  Ferguson Plc

Applied Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Applied Industrial Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Applied Industrial is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Ferguson Plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ferguson Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Applied Industrial and Ferguson Plc

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

The idea behind Applied Industrial Technologies and Ferguson Plc 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.