Correlation Between Donaldson and XCHG Limited

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

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

Diversification Opportunities for Donaldson and XCHG Limited

0.61

Correlation Coefficient

Donaldson  XCHG Limited

Poor diversification

The 3 months correlation between Donaldson and XCHG is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Donaldson and XCHG Limited American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XCHG Limited American 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 XCHG Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XCHG Limited American has no effect on the direction of Donaldson i.e., Donaldson and XCHG Limited go up and down completely randomly.

Pair Corralation between Donaldson and XCHG Limited

Considering the 90-day investment horizon Donaldson is expected to generate 0.04 times more return on investment than XCHG Limited. However, Donaldson is 23.25 times less risky than XCHG Limited. It trades about -0.35 of its potential returns per unit of risk. XCHG Limited American is currently generating about -0.17 per unit of risk. If you would invest  7,256  in Donaldson on October 9, 2024 and sell it today you would lose (499.00) from holding Donaldson or give up 6.88% of portfolio value over 90 days.

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

Donaldson  vs.  XCHG Limited American

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 latest weak performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

XCHG Limited American

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Donaldson and XCHG Limited

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

The idea behind Donaldson and XCHG Limited American 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.