Correlation Between Rockwell Automation and Smiths Group

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

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

Diversification Opportunities for Rockwell Automation and Smiths Group

-0.16

Correlation Coefficient

Rockwell Automation  Smiths Group

Good diversification

The 3 months correlation between Rockwell and Smiths is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Rockwell Automation and Smiths Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smiths Group Plc and Rockwell Automation 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 Rockwell Automation are associated (or correlated) with Smiths Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smiths Group Plc has no effect on the direction of Rockwell Automation i.e., Rockwell Automation and Smiths Group go up and down completely randomly.

Pair Corralation between Rockwell Automation and Smiths Group

Considering the 90-day investment horizon Rockwell Automation is expected to under-perform the Smiths Group. In addition to that, Rockwell Automation is 1.14 times more volatile than Smiths Group Plc. It trades about -0.06 of its total potential returns per unit of risk. Smiths Group Plc is currently generating about 0.15 per unit of volatility. If you would invest  2,160  in Smiths Group Plc on December 29, 2024 and sell it today you would earn a total of  398.00  from holding Smiths Group Plc or generate 18.43% return on investment over 90 days.

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

Rockwell Automation  vs.  Smiths Group Plc

Rockwell Automation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rockwell Automation 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.

Smiths Group Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smiths Group Plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Smiths Group showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rockwell Automation and Smiths Group

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

The idea behind Rockwell Automation and Smiths Group Plc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.