Correlation Between ESCO Technologies and Vontier Corp

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

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

Diversification Opportunities for ESCO Technologies and Vontier Corp

0.84

Correlation Coefficient

ESCO Technologies  Vontier Corp

Very poor diversification

The 3 months correlation between ESCO and Vontier is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding ESCO Technologies and Vontier Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vontier Corp and ESCO Technologies 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 ESCO Technologies are associated (or correlated) with Vontier Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vontier Corp has no effect on the direction of ESCO Technologies i.e., ESCO Technologies and Vontier Corp go up and down completely randomly.

Pair Corralation between ESCO Technologies and Vontier Corp

Considering the 90-day investment horizon ESCO Technologies is expected to generate 0.98 times more return on investment than Vontier Corp. However, ESCO Technologies is 1.03 times less risky than Vontier Corp. It trades about 0.2 of its potential returns per unit of risk. Vontier Corp is currently generating about 0.11 per unit of risk. If you would invest  11,984  in ESCO Technologies on August 30, 2024 and sell it today you would earn a total of  2,825  from holding ESCO Technologies or generate 23.57% return on investment over 90 days.

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

ESCO Technologies  vs.  Vontier Corp

ESCO Technologies

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ESCO Technologies are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ESCO Technologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Vontier Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vontier Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Vontier Corp may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with ESCO Technologies and Vontier Corp

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

The idea behind ESCO Technologies and Vontier Corp 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 Global Correlations module to find global opportunities by holding instruments from different markets.