Correlation Between Kadant and CSW Industrials

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

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

Diversification Opportunities for Kadant and CSW Industrials

0.85

Correlation Coefficient

Kadant  CSW Industrials

Very poor diversification

The 3 months correlation between Kadant and CSW is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Kadant Inc and CSW Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSW Industrials and Kadant 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 Kadant Inc are associated (or correlated) with CSW Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSW Industrials has no effect on the direction of Kadant i.e., Kadant and CSW Industrials go up and down completely randomly.

Pair Corralation between Kadant and CSW Industrials

Considering the 90-day investment horizon Kadant is expected to generate 1.01 times less return on investment than CSW Industrials. In addition to that, Kadant is 1.22 times more volatile than CSW Industrials. It trades about 0.1 of its total potential returns per unit of risk. CSW Industrials is currently generating about 0.12 per unit of volatility. If you would invest  33,999  in CSW Industrials on September 15, 2024 and sell it today you would earn a total of  4,869  from holding CSW Industrials or generate 14.32% return on investment over 90 days.

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

Kadant Inc  vs.  CSW Industrials

Kadant Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kadant Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Kadant demonstrated solid returns over the last few months and may actually be approaching a breakup point.

CSW Industrials

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CSW Industrials are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, CSW Industrials demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kadant and CSW Industrials

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

The idea behind Kadant Inc and CSW Industrials 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.