Correlation Between CECO Environmental and PennantPark Investment

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

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

Diversification Opportunities for CECO Environmental and PennantPark Investment

0.09

Correlation Coefficient

CECO Environmental  PennantPark Investment

Significant diversification

The 3 months correlation between CECO and PennantPark is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding CECO Environmental Corp and PennantPark Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark Investment and CECO Environmental 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 CECO Environmental Corp are associated (or correlated) with PennantPark Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Investment has no effect on the direction of CECO Environmental i.e., CECO Environmental and PennantPark Investment go up and down completely randomly.

Pair Corralation between CECO Environmental and PennantPark Investment

Given the investment horizon of 90 days CECO Environmental Corp is expected to generate 2.8 times more return on investment than PennantPark Investment. However, CECO Environmental is 2.8 times more volatile than PennantPark Investment. It trades about 0.2 of its potential returns per unit of risk. PennantPark Investment is currently generating about -0.08 per unit of risk. If you would invest  2,838  in CECO Environmental Corp on September 19, 2024 and sell it today you would earn a total of  282.00  from holding CECO Environmental Corp or generate 9.94% return on investment over 90 days.

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

CECO Environmental Corp  vs.  PennantPark Investment

CECO Environmental Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CECO Environmental Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, CECO Environmental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PennantPark Investment

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, PennantPark Investment is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CECO Environmental and PennantPark Investment

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

The idea behind CECO Environmental Corp and PennantPark Investment 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.