Correlation Between Donaldson and CSW Industrials

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

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

Diversification Opportunities for Donaldson and CSW Industrials

0.13

Correlation Coefficient

Donaldson  CSW Industrials

Average diversification

The 3 months correlation between Donaldson and CSW is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Donaldson and CSW Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSW Industrials and Donaldson 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 Donaldson are associated (or correlated) with CSW Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSW Industrials has no effect on the direction of Donaldson i.e., Donaldson and CSW Industrials go up and down completely randomly.

Pair Corralation between Donaldson and CSW Industrials

Considering the 90-day investment horizon Donaldson is expected to generate 0.67 times more return on investment than CSW Industrials. However, Donaldson is 1.5 times less risky than CSW Industrials. It trades about 0.01 of its potential returns per unit of risk. CSW Industrials is currently generating about -0.17 per unit of risk. If you would invest  6,702  in Donaldson on December 28, 2024 and sell it today you would earn a total of  5.00  from holding Donaldson or generate 0.07% return on investment over 90 days.

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

Donaldson  vs.  CSW Industrials

Donaldson

Risk-Adjusted Performance

Very Weak

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

CSW Industrials

Risk-Adjusted Performance

Very Weak

Over the last 90 days CSW Industrials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady 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 recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Donaldson and CSW Industrials

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

The idea behind Donaldson and CSW Industrials 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.