Correlation Between Simpson Manufacturing and Veralto

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

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

Diversification Opportunities for Simpson Manufacturing and Veralto

0.48

Correlation Coefficient

Simpson Manufacturing  Veralto

Very weak diversification

The 3 months correlation between Simpson and Veralto is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Simpson Manufacturing and Veralto in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veralto 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 Veralto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veralto has no effect on the direction of Simpson Manufacturing i.e., Simpson Manufacturing and Veralto go up and down completely randomly.

Pair Corralation between Simpson Manufacturing and Veralto

Considering the 90-day investment horizon Simpson Manufacturing is expected to generate 1.78 times more return on investment than Veralto. However, Simpson Manufacturing is 1.78 times more volatile than Veralto. It trades about 0.06 of its potential returns per unit of risk. Veralto is currently generating about -0.03 per unit of risk. If you would invest  17,424  in Simpson Manufacturing on September 12, 2024 and sell it today you would earn a total of  1,157  from holding Simpson Manufacturing or generate 6.64% return on investment over 90 days.

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

Simpson Manufacturing  vs.  Veralto

Simpson Manufacturing

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Simpson Manufacturing are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Simpson Manufacturing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Veralto

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Veralto has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Veralto is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Simpson Manufacturing and Veralto

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

The idea behind Simpson Manufacturing and Veralto 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.