Correlation Between Coherent and ESCO Technologies

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

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

Diversification Opportunities for Coherent and ESCO Technologies

0.75

Correlation Coefficient

Coherent  ESCO Technologies

Poor diversification

The 3 months correlation between Coherent and ESCO is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Coherent and ESCO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESCO Technologies and Coherent 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 Coherent 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 Coherent i.e., Coherent and ESCO Technologies go up and down completely randomly.

Pair Corralation between Coherent and ESCO Technologies

Given the investment horizon of 90 days Coherent is expected to generate 1.92 times more return on investment than ESCO Technologies. However, Coherent is 1.92 times more volatile than ESCO Technologies. It trades about 0.12 of its potential returns per unit of risk. ESCO Technologies is currently generating about 0.2 per unit of risk. If you would invest  7,795  in Coherent on August 30, 2024 and sell it today you would earn a total of  2,014  from holding Coherent or generate 25.84% return on investment over 90 days.

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

Coherent  vs.  ESCO Technologies

Coherent

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coherent are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical indicators, Coherent reported solid returns over the last few months and may actually be approaching a breakup point.

ESCO Technologies

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ESCO Technologies are ranked lower than 15 (%) 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 Coherent and ESCO Technologies

The main advantage of trading using opposite Coherent and ESCO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coherent 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 Coherent 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.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.