Correlation Between Cognex and ESCO Technologies

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

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

Diversification Opportunities for Cognex and ESCO Technologies

-0.72

Correlation Coefficient

Cognex  ESCO Technologies

Pay attention - limited upside

The 3 months correlation between Cognex and ESCO is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Cognex and ESCO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESCO Technologies and Cognex 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 Cognex 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 Cognex i.e., Cognex and ESCO Technologies go up and down completely randomly.

Pair Corralation between Cognex and ESCO Technologies

Given the investment horizon of 90 days Cognex is expected to under-perform the ESCO Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Cognex is 1.17 times less risky than ESCO Technologies. The stock trades about -0.09 of its potential returns per unit of risk. The ESCO Technologies is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  13,731  in ESCO Technologies on December 26, 2024 and sell it today you would earn a total of  2,742  from holding ESCO Technologies or generate 19.97% return on investment over 90 days.

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

Cognex  vs.  ESCO Technologies

Cognex

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cognex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

ESCO Technologies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ESCO Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ESCO Technologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cognex and ESCO Technologies

The main advantage of trading using opposite Cognex and ESCO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cognex 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 Cognex 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 Transaction History module to view history of all your transactions and understand their impact on performance.