Correlation Between Franklin Electric and Xylem

Can any of the company-specific risk be diversified away by investing in both Franklin Electric and Xylem 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 Xylem 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 Xylem Inc, you can compare the effects of market volatilities on Franklin Electric and Xylem 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 Xylem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Electric and Xylem.

Diversification Opportunities for Franklin Electric and Xylem

0.8

Correlation Coefficient

Franklin Electric  Xylem

Very poor diversification

The 3 months correlation between Franklin and Xylem is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Electric Co and Xylem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xylem Inc 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 Xylem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xylem Inc has no effect on the direction of Franklin Electric i.e., Franklin Electric and Xylem go up and down completely randomly.

Pair Corralation between Franklin Electric and Xylem

Given the investment horizon of 90 days Franklin Electric Co is expected to under-perform the Xylem. In addition to that, Franklin Electric is 1.06 times more volatile than Xylem Inc. It trades about 0.0 of its total potential returns per unit of risk. Xylem Inc is currently generating about 0.06 per unit of volatility. If you would invest  11,810  in Xylem Inc on December 25, 2024 and sell it today you would earn a total of  503.00  from holding Xylem Inc or generate 4.26% return on investment over 90 days.

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

Franklin Electric Co  vs.  Xylem Inc

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.

Xylem Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xylem Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Xylem is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Franklin Electric and Xylem

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

The idea behind Franklin Electric Co and Xylem Inc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.