Correlation Between Kadant and Xylem

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

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

Diversification Opportunities for Kadant and Xylem

-0.05

Correlation Coefficient

Kadant  Xylem

Good diversification

The 3 months correlation between Kadant and Xylem is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Kadant Inc and Xylem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xylem Inc 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 Xylem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xylem Inc has no effect on the direction of Kadant i.e., Kadant and Xylem go up and down completely randomly.

Pair Corralation between Kadant and Xylem

Considering the 90-day investment horizon Kadant Inc is expected to generate 1.42 times more return on investment than Xylem. However, Kadant is 1.42 times more volatile than Xylem Inc. It trades about 0.07 of its potential returns per unit of risk. Xylem Inc is currently generating about 0.03 per unit of risk. If you would invest  20,190  in Kadant Inc on October 22, 2024 and sell it today you would earn a total of  16,513  from holding Kadant Inc or generate 81.79% return on investment over 90 days.

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

Kadant Inc  vs.  Xylem Inc

Kadant Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kadant Inc are ranked lower than 9 (%) 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.

Xylem Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xylem Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Kadant and Xylem

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

The idea behind Kadant Inc and Xylem Inc 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.