Correlation Between Donaldson and NET Power

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

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

Diversification Opportunities for Donaldson and NET Power

0.47

Correlation Coefficient

Donaldson  NET Power

Very weak diversification

The 3 months correlation between Donaldson and NET is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Donaldson and NET Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NET Power 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 NET Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NET Power has no effect on the direction of Donaldson i.e., Donaldson and NET Power go up and down completely randomly.

Pair Corralation between Donaldson and NET Power

Considering the 90-day investment horizon Donaldson is expected to generate 0.42 times more return on investment than NET Power. However, Donaldson is 2.38 times less risky than NET Power. It trades about -0.34 of its potential returns per unit of risk. NET Power is currently generating about -0.3 per unit of risk. If you would invest  7,716  in Donaldson on September 23, 2024 and sell it today you would lose (914.00) from holding Donaldson or give up 11.85% of portfolio value over 90 days.

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

Donaldson  vs.  NET Power

Donaldson

Risk-Adjusted Performance

0 of 100

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 current stock price confusion, may contribute to short-horizon losses for the traders.

NET Power

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Donaldson and NET Power

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

The idea behind Donaldson and NET Power 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.