Correlation Between Donaldson and Gates Industrial

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

By analyzing existing cross correlation between Donaldson and Gates Industrial, you can compare the effects of market volatilities on Donaldson and Gates Industrial 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 Gates Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Donaldson and Gates Industrial.

Diversification Opportunities for Donaldson and Gates Industrial

0.29

Correlation Coefficient

Donaldson  Gates Industrial

Modest diversification

The 3 months correlation between Donaldson and Gates is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Donaldson and Gates Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gates Industrial 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 Gates Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gates Industrial has no effect on the direction of Donaldson i.e., Donaldson and Gates Industrial go up and down completely randomly.

Pair Corralation between Donaldson and Gates Industrial

Considering the 90-day investment horizon Donaldson is expected to generate 0.43 times more return on investment than Gates Industrial. However, Donaldson is 2.3 times less risky than Gates Industrial. It trades about 0.04 of its potential returns per unit of risk. Gates Industrial is currently generating about -0.02 per unit of risk. If you would invest  6,702  in Donaldson on December 29, 2024 and sell it today you would earn a total of  173.00  from holding Donaldson or generate 2.58% return on investment over 90 days.

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

Donaldson  vs.  Gates Industrial

Donaldson

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Donaldson are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Donaldson is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Gates Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gates Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Gates Industrial is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Donaldson and Gates Industrial

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

The idea behind Donaldson and Gates Industrial 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.