Correlation Between Fortive Corp and Electro Sensors

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

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

Diversification Opportunities for Fortive Corp and Electro Sensors

0.49

Correlation Coefficient

Fortive Corp  Electro Sensors

Very weak diversification

The 3 months correlation between Fortive and Electro is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Fortive Corp and Electro Sensors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electro Sensors and Fortive Corp 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 Fortive Corp are associated (or correlated) with Electro Sensors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electro Sensors has no effect on the direction of Fortive Corp i.e., Fortive Corp and Electro Sensors go up and down completely randomly.

Pair Corralation between Fortive Corp and Electro Sensors

Considering the 90-day investment horizon Fortive Corp is expected to generate 3.38 times less return on investment than Electro Sensors. But when comparing it to its historical volatility, Fortive Corp is 1.76 times less risky than Electro Sensors. It trades about 0.06 of its potential returns per unit of risk. Electro Sensors is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  404.00  in Electro Sensors on September 16, 2024 and sell it today you would earn a total of  58.00  from holding Electro Sensors or generate 14.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	92.31%
Values	Daily Returns

Fortive Corp  vs.  Electro Sensors

Fortive Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fortive Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Fortive Corp is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Electro Sensors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electro Sensors are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Electro Sensors exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fortive Corp and Electro Sensors

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

The idea behind Fortive Corp and Electro Sensors 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.