Correlation Between Donaldson and Tennant

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

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

Diversification Opportunities for Donaldson and Tennant

0.73

Correlation Coefficient

Donaldson  Tennant

Poor diversification

The 3 months correlation between Donaldson and Tennant is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Donaldson and Tennant Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tennant Company 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 Tennant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tennant Company has no effect on the direction of Donaldson i.e., Donaldson and Tennant go up and down completely randomly.

Pair Corralation between Donaldson and Tennant

Considering the 90-day investment horizon Donaldson is expected to generate 4.63 times less return on investment than Tennant. But when comparing it to its historical volatility, Donaldson is 1.24 times less risky than Tennant. It trades about 0.01 of its potential returns per unit of risk. Tennant Company is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,105  in Tennant Company on December 29, 2024 and sell it today you would earn a total of  141.00  from holding Tennant Company or generate 1.74% return on investment over 90 days.

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

Donaldson  vs.  Tennant Company

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

Tennant Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tennant Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Tennant is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Donaldson and Tennant

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

The idea behind Donaldson and Tennant Company 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.