Correlation Between Sono Tek and ESCO Technologies

Can any of the company-specific risk be diversified away by investing in both Sono Tek and ESCO Technologies 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 ESCO Technologies 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 ESCO Technologies, you can compare the effects of market volatilities on Sono Tek and ESCO Technologies 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 ESCO Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sono Tek and ESCO Technologies.

Diversification Opportunities for Sono Tek and ESCO Technologies

-0.7

Correlation Coefficient

Sono Tek  ESCO Technologies

Excellent diversification

The 3 months correlation between Sono and ESCO is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Sono Tek Corp and ESCO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESCO Technologies 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 ESCO Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESCO Technologies has no effect on the direction of Sono Tek i.e., Sono Tek and ESCO Technologies go up and down completely randomly.

Pair Corralation between Sono Tek and ESCO Technologies

Given the investment horizon of 90 days Sono Tek Corp is expected to under-perform the ESCO Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Sono Tek Corp is 1.16 times less risky than ESCO Technologies. The stock trades about -0.09 of its potential returns per unit of risk. The ESCO Technologies is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  13,447  in ESCO Technologies on December 27, 2024 and sell it today you would earn a total of  2,591  from holding ESCO Technologies or generate 19.27% return on investment over 90 days.

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

Sono Tek Corp  vs.  ESCO Technologies

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.

ESCO Technologies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ESCO Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ESCO Technologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sono Tek and ESCO Technologies

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

The idea behind Sono Tek Corp and ESCO Technologies 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.