Correlation Between Sono Tek and Badger Meter

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

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

Diversification Opportunities for Sono Tek and Badger Meter

0.64

Correlation Coefficient

Sono Tek  Badger Meter

Poor diversification

The 3 months correlation between Sono and Badger is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Sono Tek Corp and Badger Meter in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Badger Meter and Sono Tek 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 Sono Tek Corp are associated (or correlated) with Badger Meter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Badger Meter has no effect on the direction of Sono Tek i.e., Sono Tek and Badger Meter go up and down completely randomly.

Pair Corralation between Sono Tek and Badger Meter

Given the investment horizon of 90 days Sono Tek Corp is expected to under-perform the Badger Meter. In addition to that, Sono Tek is 1.62 times more volatile than Badger Meter. It trades about -0.09 of its total potential returns per unit of risk. Badger Meter is currently generating about -0.11 per unit of volatility. If you would invest  21,510  in Badger Meter on December 27, 2024 and sell it today you would lose (2,272) from holding Badger Meter or give up 10.56% of portfolio value over 90 days.

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

Sono Tek Corp  vs.  Badger Meter

Sono Tek Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sono Tek Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Badger Meter

Risk-Adjusted Performance

Very Weak

Over the last 90 days Badger Meter has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's primary indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Sono Tek and Badger Meter

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

The idea behind Sono Tek Corp and Badger Meter 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.