Correlation Between Simpson Manufacturing and ChampionX

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

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

Diversification Opportunities for Simpson Manufacturing and ChampionX

0.03

Correlation Coefficient

Simpson Manufacturing  ChampionX

Significant diversification

The 3 months correlation between Simpson and ChampionX is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Simpson Manufacturing and ChampionX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ChampionX and Simpson Manufacturing 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 Simpson Manufacturing are associated (or correlated) with ChampionX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ChampionX has no effect on the direction of Simpson Manufacturing i.e., Simpson Manufacturing and ChampionX go up and down completely randomly.

Pair Corralation between Simpson Manufacturing and ChampionX

Considering the 90-day investment horizon Simpson Manufacturing is expected to under-perform the ChampionX. But the stock apears to be less risky and, when comparing its historical volatility, Simpson Manufacturing is 1.23 times less risky than ChampionX. The stock trades about -0.05 of its potential returns per unit of risk. The ChampionX is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,659  in ChampionX on December 26, 2024 and sell it today you would earn a total of  400.00  from holding ChampionX or generate 15.04% return on investment over 90 days.

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

Simpson Manufacturing  vs.  ChampionX

Simpson Manufacturing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simpson Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Simpson Manufacturing is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

ChampionX

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ChampionX are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical indicators, ChampionX showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Simpson Manufacturing and ChampionX

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

The idea behind Simpson Manufacturing and ChampionX 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.