Correlation Between Textron and Masco

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

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

Diversification Opportunities for Textron and Masco

-0.07

Correlation Coefficient

Textron  Masco

Good diversification

The 3 months correlation between Textron and Masco is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Textron and Masco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Masco and Textron 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 Textron are associated (or correlated) with Masco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Masco has no effect on the direction of Textron i.e., Textron and Masco go up and down completely randomly.

Pair Corralation between Textron and Masco

If you would invest  165,495  in Textron on September 24, 2024 and sell it today you would earn a total of  40.00  from holding Textron or generate 0.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Textron  vs.  Masco

Textron

Risk-Adjusted Performance

0 of 100

Very Weak

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

Masco

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Masco are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Masco is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Textron and Masco

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

The idea behind Textron and Masco 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.