Correlation Between Kadant and Watts Water

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

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

Diversification Opportunities for Kadant and Watts Water

0.74

Correlation Coefficient

Kadant  Watts Water

Poor diversification

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

Pair Corralation between Kadant and Watts Water

Considering the 90-day investment horizon Kadant Inc is expected to generate 1.53 times more return on investment than Watts Water. However, Kadant is 1.53 times more volatile than Watts Water Technologies. It trades about 0.17 of its potential returns per unit of risk. Watts Water Technologies is currently generating about 0.1 per unit of risk. If you would invest  32,081  in Kadant Inc on August 30, 2024 and sell it today you would earn a total of  8,265  from holding Kadant Inc or generate 25.76% return on investment over 90 days.

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

Kadant Inc  vs.  Watts Water Technologies

Kadant Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kadant Inc are ranked lower than 13 (%) 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.

Watts Water Technologies

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Watts Water Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Watts Water may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Kadant and Watts Water

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

The idea behind Kadant Inc and Watts Water Technologies 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.