Correlation Between Servotronics and Kennametal

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

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

Diversification Opportunities for Servotronics and Kennametal

0.49

Correlation Coefficient

Servotronics  Kennametal

Very weak diversification

The 3 months correlation between Servotronics and Kennametal is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Servotronics and Kennametal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kennametal and Servotronics 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 Servotronics are associated (or correlated) with Kennametal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kennametal has no effect on the direction of Servotronics i.e., Servotronics and Kennametal go up and down completely randomly.

Pair Corralation between Servotronics and Kennametal

Considering the 90-day investment horizon Servotronics is expected to generate 1.71 times more return on investment than Kennametal. However, Servotronics is 1.71 times more volatile than Kennametal. It trades about 0.01 of its potential returns per unit of risk. Kennametal is currently generating about -0.29 per unit of risk. If you would invest  1,106  in Servotronics on November 28, 2024 and sell it today you would lose (6.00) from holding Servotronics or give up 0.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.61%
Values	Daily Returns

Servotronics  vs.  Kennametal

Servotronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Servotronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Servotronics is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Kennametal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kennametal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Servotronics and Kennametal

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

The idea behind Servotronics and Kennametal 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.