Correlation Between Espey Mfg and Toro

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

By analyzing existing cross correlation between Espey Mfg Electronics and Toro Co, you can compare the effects of market volatilities on Espey Mfg and Toro 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 Espey Mfg with a short position of Toro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Espey Mfg and Toro.

Diversification Opportunities for Espey Mfg and Toro

0.63

Correlation Coefficient

Espey Mfg  Toro

Poor diversification

The 3 months correlation between Espey and Toro is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Espey Mfg Electronics and Toro Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toro and Espey Mfg 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 Espey Mfg Electronics are associated (or correlated) with Toro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toro has no effect on the direction of Espey Mfg i.e., Espey Mfg and Toro go up and down completely randomly.

Pair Corralation between Espey Mfg and Toro

Considering the 90-day investment horizon Espey Mfg Electronics is expected to under-perform the Toro. In addition to that, Espey Mfg is 1.23 times more volatile than Toro Co. It trades about -0.08 of its total potential returns per unit of risk. Toro Co is currently generating about -0.06 per unit of volatility. If you would invest  8,103  in Toro Co on December 27, 2024 and sell it today you would lose (614.00) from holding Toro Co or give up 7.58% of portfolio value over 90 days.

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

Espey Mfg Electronics  vs.  Toro Co

Espey Mfg Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Espey Mfg Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Toro

Risk-Adjusted Performance

Very Weak

Over the last 90 days Toro Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Espey Mfg and Toro

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

The idea behind Espey Mfg Electronics and Toro Co 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.