Correlation Between ITT and Flowserve

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

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

Diversification Opportunities for ITT and Flowserve

0.9

Correlation Coefficient

ITT  Flowserve

Almost no diversification

The 3 months correlation between ITT and Flowserve is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding ITT Inc and Flowserve in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flowserve and ITT 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 ITT Inc are associated (or correlated) with Flowserve. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flowserve has no effect on the direction of ITT i.e., ITT and Flowserve go up and down completely randomly.

Pair Corralation between ITT and Flowserve

Considering the 90-day investment horizon ITT is expected to generate 1.55 times less return on investment than Flowserve. But when comparing it to its historical volatility, ITT Inc is 1.24 times less risky than Flowserve. It trades about 0.18 of its potential returns per unit of risk. Flowserve is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  4,714  in Flowserve on September 4, 2024 and sell it today you would earn a total of  1,372  from holding Flowserve or generate 29.1% return on investment over 90 days.

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

ITT Inc  vs.  Flowserve

ITT Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ITT Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, ITT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Flowserve

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Flowserve are ranked lower than 17 (%) 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.

Pair Trading with ITT and Flowserve

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

The idea behind ITT Inc and Flowserve 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.