Correlation Between SG Blocks and ESAB Corp

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

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

Diversification Opportunities for SG Blocks and ESAB Corp

0.33

Correlation Coefficient

SG Blocks  ESAB Corp

Weak diversification

The 3 months correlation between SGBX and ESAB is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding SG Blocks and ESAB Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESAB Corp and SG Blocks 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 SG Blocks are associated (or correlated) with ESAB Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESAB Corp has no effect on the direction of SG Blocks i.e., SG Blocks and ESAB Corp go up and down completely randomly.

Pair Corralation between SG Blocks and ESAB Corp

Given the investment horizon of 90 days SG Blocks is expected to generate 7.65 times more return on investment than ESAB Corp. However, SG Blocks is 7.65 times more volatile than ESAB Corp. It trades about 0.06 of its potential returns per unit of risk. ESAB Corp is currently generating about -0.02 per unit of risk. If you would invest  47.00  in SG Blocks on December 28, 2024 and sell it today you would lose (0.85) from holding SG Blocks or give up 1.81% of portfolio value over 90 days.

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

SG Blocks  vs.  ESAB Corp

SG Blocks

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SG Blocks are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, SG Blocks showed solid returns over the last few months and may actually be approaching a breakup point.

ESAB Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ESAB Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ESAB Corp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SG Blocks and ESAB Corp

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

The idea behind SG Blocks and ESAB Corp 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.

Check out your portfolio center.

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 Valuation module to check real value of public entities based on technical and fundamental data.