Correlation Between Kadant and Power Solutions

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

By analyzing existing cross correlation between Kadant Inc and Power Solutions International,, you can compare the effects of market volatilities on Kadant and Power Solutions 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 Power Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kadant and Power Solutions.

Diversification Opportunities for Kadant and Power Solutions

0.72

Correlation Coefficient

Kadant  Power Solutions

Poor diversification

The 3 months correlation between Kadant and Power is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Kadant Inc and Power Solutions International, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Solutions Inte 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 Power Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Solutions Inte has no effect on the direction of Kadant i.e., Kadant and Power Solutions go up and down completely randomly.

Pair Corralation between Kadant and Power Solutions

Considering the 90-day investment horizon Kadant Inc is expected to under-perform the Power Solutions. But the stock apears to be less risky and, when comparing its historical volatility, Kadant Inc is 8.85 times less risky than Power Solutions. The stock trades about -0.48 of its potential returns per unit of risk. The Power Solutions International, is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,938  in Power Solutions International, on October 8, 2024 and sell it today you would lose (78.00) from holding Power Solutions International, or give up 2.65% of portfolio value over 90 days.

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

Kadant Inc  vs.  Power Solutions International,

Kadant Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kadant Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Kadant may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Power Solutions Inte

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Power Solutions International, are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain forward indicators, Power Solutions showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kadant and Power Solutions

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

The idea behind Kadant Inc and Power Solutions International, 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.