Correlation Between Herc Holdings and CECO Environmental

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

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

Diversification Opportunities for Herc Holdings and CECO Environmental

0.74

Correlation Coefficient

Herc Holdings  CECO Environmental

Poor diversification

The 3 months correlation between Herc and CECO is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Herc Holdings and CECO Environmental Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CECO Environmental Corp and Herc Holdings 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 Herc Holdings are associated (or correlated) with CECO Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CECO Environmental Corp has no effect on the direction of Herc Holdings i.e., Herc Holdings and CECO Environmental go up and down completely randomly.

Pair Corralation between Herc Holdings and CECO Environmental

Considering the 90-day investment horizon Herc Holdings is expected to under-perform the CECO Environmental. In addition to that, Herc Holdings is 1.21 times more volatile than CECO Environmental Corp. It trades about -0.13 of its total potential returns per unit of risk. CECO Environmental Corp is currently generating about -0.11 per unit of volatility. If you would invest  2,947  in CECO Environmental Corp on December 27, 2024 and sell it today you would lose (531.00) from holding CECO Environmental Corp or give up 18.02% of portfolio value over 90 days.

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

Herc Holdings  vs.  CECO Environmental Corp

Herc Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Herc Holdings 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.

CECO Environmental Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CECO Environmental Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Herc Holdings and CECO Environmental

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

The idea behind Herc Holdings and CECO Environmental Corp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.