Correlation Between ESAB Corp and Allegheny Technologies

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

By analyzing existing cross correlation between ESAB Corp and Allegheny Technologies Incorporated, you can compare the effects of market volatilities on ESAB Corp and Allegheny Technologies 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 ESAB Corp with a short position of Allegheny Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESAB Corp and Allegheny Technologies.

Diversification Opportunities for ESAB Corp and Allegheny Technologies

0.38

Correlation Coefficient

ESAB Corp  Allegheny Technologies

Weak diversification

The 3 months correlation between ESAB and Allegheny is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding ESAB Corp and Allegheny Technologies Incorpo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegheny Technologies and ESAB Corp 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 ESAB Corp are associated (or correlated) with Allegheny Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegheny Technologies has no effect on the direction of ESAB Corp i.e., ESAB Corp and Allegheny Technologies go up and down completely randomly.

Pair Corralation between ESAB Corp and Allegheny Technologies

Given the investment horizon of 90 days ESAB Corp is expected to generate 0.79 times more return on investment than Allegheny Technologies. However, ESAB Corp is 1.26 times less risky than Allegheny Technologies. It trades about 0.01 of its potential returns per unit of risk. Allegheny Technologies Incorporated is currently generating about -0.01 per unit of risk. If you would invest  12,011  in ESAB Corp on December 28, 2024 and sell it today you would earn a total of  34.00  from holding ESAB Corp or generate 0.28% return on investment over 90 days.

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

ESAB Corp  vs.  Allegheny Technologies Incorpo

ESAB Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ESAB Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ESAB Corp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Allegheny Technologies

Risk-Adjusted Performance

Very Weak

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

Pair Trading with ESAB Corp and Allegheny Technologies

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

The idea behind ESAB Corp and Allegheny Technologies Incorporated 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.