Correlation Between ChampionX and Simpson Manufacturing

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

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

Diversification Opportunities for ChampionX and Simpson Manufacturing

0.03

Correlation Coefficient

ChampionX  Simpson Manufacturing

Significant diversification

The 3 months correlation between ChampionX and Simpson is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding ChampionX and Simpson Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simpson Manufacturing and ChampionX 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 ChampionX are associated (or correlated) with Simpson Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simpson Manufacturing has no effect on the direction of ChampionX i.e., ChampionX and Simpson Manufacturing go up and down completely randomly.

Pair Corralation between ChampionX and Simpson Manufacturing

Considering the 90-day investment horizon ChampionX is expected to generate 1.23 times more return on investment than Simpson Manufacturing. However, ChampionX is 1.23 times more volatile than Simpson Manufacturing. It trades about 0.13 of its potential returns per unit of risk. Simpson Manufacturing is currently generating about -0.05 per unit of risk. If you would invest  2,659  in ChampionX on December 26, 2024 and sell it today you would earn a total of  400.00  from holding ChampionX or generate 15.04% return on investment over 90 days.

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

ChampionX  vs.  Simpson Manufacturing

ChampionX

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ChampionX are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical indicators, ChampionX showed solid returns over the last few months and may actually be approaching a breakup point.

Simpson Manufacturing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simpson Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Simpson Manufacturing is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ChampionX and Simpson Manufacturing

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

The idea behind ChampionX and Simpson Manufacturing 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.