Correlation Between IDEX and CVD Equipment

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

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

Diversification Opportunities for IDEX and CVD Equipment

0.6

Correlation Coefficient

IDEX  CVD Equipment

Poor diversification

The 3 months correlation between IDEX and CVD is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding IDEX Corp. and CVD Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVD Equipment and IDEX 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 IDEX Corporation are associated (or correlated) with CVD Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVD Equipment has no effect on the direction of IDEX i.e., IDEX and CVD Equipment go up and down completely randomly.

Pair Corralation between IDEX and CVD Equipment

Considering the 90-day investment horizon IDEX Corporation is expected to generate 0.45 times more return on investment than CVD Equipment. However, IDEX Corporation is 2.23 times less risky than CVD Equipment. It trades about -0.13 of its potential returns per unit of risk. CVD Equipment is currently generating about -0.1 per unit of risk. If you would invest  21,230  in IDEX Corporation on December 26, 2024 and sell it today you would lose (2,793) from holding IDEX Corporation or give up 13.16% of portfolio value over 90 days.

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

IDEX Corp.  vs.  CVD Equipment

IDEX

Risk-Adjusted Performance

Very Weak

Over the last 90 days IDEX Corporation 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

CVD Equipment

Risk-Adjusted Performance

Very Weak

Over the last 90 days CVD Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with IDEX and CVD Equipment

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

The idea behind IDEX Corporation and CVD Equipment 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.