Correlation Between Badger Meter and ESCO Technologies

Can any of the company-specific risk be diversified away by investing in both Badger Meter and ESCO Technologies 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 Badger Meter and ESCO Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Badger Meter and ESCO Technologies

0.28

Correlation Coefficient

Badger Meter  ESCO Technologies

Modest diversification

The 3 months correlation between Badger and ESCO is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Badger Meter and ESCO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESCO Technologies and Badger Meter 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 Badger Meter are associated (or correlated) with ESCO Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESCO Technologies has no effect on the direction of Badger Meter i.e., Badger Meter and ESCO Technologies go up and down completely randomly.

Pair Corralation between Badger Meter and ESCO Technologies

Considering the 90-day investment horizon Badger Meter is expected to generate 1.0 times more return on investment than ESCO Technologies. However, Badger Meter is 1.0 times more volatile than ESCO Technologies. It trades about 0.07 of its potential returns per unit of risk. ESCO Technologies is currently generating about 0.07 per unit of risk. If you would invest  12,024  in Badger Meter on November 19, 2024 and sell it today you would earn a total of  9,707  from holding Badger Meter or generate 80.73% return on investment over 90 days.

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

Badger Meter  vs.  ESCO Technologies

Badger Meter

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Badger Meter are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong primary indicators, Badger Meter is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

ESCO Technologies

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ESCO Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ESCO Technologies may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Badger Meter and ESCO Technologies

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

The idea behind Badger Meter and ESCO Technologies 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.