Correlation Between Schneider Electric and Donaldson

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

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

Diversification Opportunities for Schneider Electric and Donaldson

0.26

Correlation Coefficient

Schneider Electric  Donaldson

Modest diversification

The 3 months correlation between Schneider and Donaldson is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Schneider Electric SA and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson and Schneider Electric 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 Schneider Electric SA are associated (or correlated) with Donaldson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donaldson has no effect on the direction of Schneider Electric i.e., Schneider Electric and Donaldson go up and down completely randomly.

Pair Corralation between Schneider Electric and Donaldson

Assuming the 90 days horizon Schneider Electric is expected to generate 8.98 times less return on investment than Donaldson. In addition to that, Schneider Electric is 1.71 times more volatile than Donaldson. It trades about 0.01 of its total potential returns per unit of risk. Donaldson is currently generating about 0.17 per unit of volatility. If you would invest  7,105  in Donaldson on August 31, 2024 and sell it today you would earn a total of  700.00  from holding Donaldson or generate 9.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Schneider Electric SA  vs.  Donaldson

Schneider Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schneider Electric SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Schneider Electric is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Donaldson

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Donaldson are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain fundamental indicators, Donaldson may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Schneider Electric and Donaldson

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

The idea behind Schneider Electric SA and Donaldson 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.