Correlation Between CSW Industrials and Flowserve

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

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

Diversification Opportunities for CSW Industrials and Flowserve

0.65

Correlation Coefficient

CSW Industrials  Flowserve

Poor diversification

The 3 months correlation between CSW and Flowserve is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding CSW Industrials and Flowserve in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flowserve and CSW Industrials 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 CSW Industrials are associated (or correlated) with Flowserve. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flowserve has no effect on the direction of CSW Industrials i.e., CSW Industrials and Flowserve go up and down completely randomly.

Pair Corralation between CSW Industrials and Flowserve

Given the investment horizon of 90 days CSW Industrials is expected to generate 1.13 times more return on investment than Flowserve. However, CSW Industrials is 1.13 times more volatile than Flowserve. It trades about 0.12 of its potential returns per unit of risk. Flowserve is currently generating about 0.08 per unit of risk. If you would invest  12,784  in CSW Industrials on October 3, 2024 and sell it today you would earn a total of  22,496  from holding CSW Industrials or generate 175.97% return on investment over 90 days.

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

CSW Industrials  vs.  Flowserve

CSW Industrials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSW Industrials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, CSW Industrials is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Flowserve

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flowserve are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Flowserve may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with CSW Industrials and Flowserve

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

The idea behind CSW Industrials and Flowserve 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.