Correlation Between Tennant and Donaldson

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

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

Diversification Opportunities for Tennant and Donaldson

0.73

Correlation Coefficient

Tennant  Donaldson

Poor diversification

The 3 months correlation between Tennant and Donaldson is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Tennant Company and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson and Tennant 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 Tennant Company are associated (or correlated) with Donaldson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donaldson has no effect on the direction of Tennant i.e., Tennant and Donaldson go up and down completely randomly.

Pair Corralation between Tennant and Donaldson

Considering the 90-day investment horizon Tennant Company is expected to generate 1.24 times more return on investment than Donaldson. However, Tennant is 1.24 times more volatile than Donaldson. It trades about 0.03 of its potential returns per unit of risk. Donaldson is currently generating about 0.01 per unit of risk. If you would invest  8,105  in Tennant Company on December 29, 2024 and sell it today you would earn a total of  141.00  from holding Tennant Company or generate 1.74% return on investment over 90 days.

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

Tennant Company  vs.  Donaldson

Tennant Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tennant Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Tennant is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Donaldson

Risk-Adjusted Performance

Very Weak

Over the last 90 days Donaldson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Donaldson is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Tennant and Donaldson

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

The idea behind Tennant Company and Donaldson 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.