Correlation Between Donaldson and Enpro Industries

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

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

Diversification Opportunities for Donaldson and Enpro Industries

0.44

Correlation Coefficient

Donaldson  Enpro Industries

Very weak diversification

The 3 months correlation between Donaldson and Enpro is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Donaldson and Enpro Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enpro Industries 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 Enpro Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enpro Industries has no effect on the direction of Donaldson i.e., Donaldson and Enpro Industries go up and down completely randomly.

Pair Corralation between Donaldson and Enpro Industries

Considering the 90-day investment horizon Donaldson is expected to generate 0.59 times more return on investment than Enpro Industries. However, Donaldson is 1.68 times less risky than Enpro Industries. It trades about 0.04 of its potential returns per unit of risk. Enpro Industries 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	Weak
Accuracy	100.0%
Values	Daily Returns

Donaldson  vs.  Enpro Industries

Donaldson

Risk-Adjusted Performance

Insignificant

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.

Enpro Industries

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Enpro Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Enpro Industries is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Donaldson and Enpro Industries

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

The idea behind Donaldson and Enpro Industries 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.