Correlation Between Enerpac Tool and CSW Industrials

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

By analyzing existing cross correlation between Enerpac Tool Group and CSW Industrials, you can compare the effects of market volatilities on Enerpac Tool and CSW Industrials 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 Enerpac Tool with a short position of CSW Industrials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enerpac Tool and CSW Industrials.

Diversification Opportunities for Enerpac Tool and CSW Industrials

0.88

Correlation Coefficient

Enerpac Tool  CSW Industrials

Very poor diversification

The 3 months correlation between Enerpac and CSW is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Enerpac Tool Group and CSW Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSW Industrials and Enerpac Tool 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 Enerpac Tool Group are associated (or correlated) with CSW Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSW Industrials has no effect on the direction of Enerpac Tool i.e., Enerpac Tool and CSW Industrials go up and down completely randomly.

Pair Corralation between Enerpac Tool and CSW Industrials

Given the investment horizon of 90 days Enerpac Tool is expected to generate 1.54 times less return on investment than CSW Industrials. But when comparing it to its historical volatility, Enerpac Tool Group is 1.35 times less risky than CSW Industrials. It trades about 0.18 of its potential returns per unit of risk. CSW Industrials is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  31,526  in CSW Industrials on September 2, 2024 and sell it today you would earn a total of  10,713  from holding CSW Industrials or generate 33.98% return on investment over 90 days.

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

Enerpac Tool Group  vs.  CSW Industrials

Enerpac Tool Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enerpac Tool Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Enerpac Tool exhibited solid returns over the last few months and may actually be approaching a breakup point.

CSW Industrials

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CSW Industrials are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, CSW Industrials demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enerpac Tool and CSW Industrials

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

The idea behind Enerpac Tool Group and CSW Industrials 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.