Correlation Between Franklin Electric and CSW Industrials

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

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

Diversification Opportunities for Franklin Electric and CSW Industrials

-0.44

Correlation Coefficient

Franklin Electric  CSW Industrials

Very good diversification

The 3 months correlation between Franklin and CSW is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Electric Co and CSW Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSW Industrials and Franklin Electric 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 Franklin Electric Co 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 Franklin Electric i.e., Franklin Electric and CSW Industrials go up and down completely randomly.

Pair Corralation between Franklin Electric and CSW Industrials

Given the investment horizon of 90 days Franklin Electric Co is expected to generate 0.8 times more return on investment than CSW Industrials. However, Franklin Electric Co is 1.25 times less risky than CSW Industrials. It trades about -0.02 of its potential returns per unit of risk. CSW Industrials is currently generating about -0.15 per unit of risk. If you would invest  9,702  in Franklin Electric Co on December 28, 2024 and sell it today you would lose (242.00) from holding Franklin Electric Co or give up 2.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Franklin Electric Co  vs.  CSW Industrials

Franklin Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Franklin Electric Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Franklin Electric is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

CSW Industrials

Risk-Adjusted Performance

Very Weak

Over the last 90 days CSW Industrials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Franklin Electric and CSW Industrials

The main advantage of trading using opposite Franklin Electric and CSW Industrials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Franklin Electric 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 Franklin Electric Co 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.