Correlation Between Flowserve and Xylem

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Can any of the company-specific risk be diversified away by investing in both Flowserve 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 Flowserve and Xylem into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Flowserve and Xylem Inc, you can compare the effects of market volatilities on Flowserve 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 Flowserve with a short position of Xylem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Flowserve and Xylem.

Diversification Opportunities for Flowserve and Xylem

-0.38
  Correlation Coefficient

Very good diversification

The 3 months correlation between Flowserve and Xylem is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Flowserve and Xylem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xylem Inc and Flowserve 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 Flowserve 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 Flowserve i.e., Flowserve and Xylem go up and down completely randomly.

Pair Corralation between Flowserve and Xylem

Considering the 90-day investment horizon Flowserve is expected to generate 1.24 times more return on investment than Xylem. However, Flowserve is 1.24 times more volatile than Xylem Inc. It trades about 0.09 of its potential returns per unit of risk. Xylem Inc is currently generating about 0.03 per unit of risk. If you would invest  3,312  in Flowserve on October 22, 2024 and sell it today you would earn a total of  3,038  from holding Flowserve or generate 91.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Flowserve  vs.  Xylem Inc

 Performance 
       Timeline  
Flowserve 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Flowserve are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Flowserve unveiled solid returns over the last few months and may actually be approaching a breakup point.
Xylem Inc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Xylem Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Flowserve and Xylem Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Flowserve and Xylem

The main advantage of trading using opposite Flowserve and Xylem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Flowserve 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 Flowserve 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.
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.

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