Correlation Between Veralto and Energy Recovery

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

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

Diversification Opportunities for Veralto and Energy Recovery

-0.15

Correlation Coefficient

Veralto  Energy Recovery

Good diversification

The 3 months correlation between Veralto and Energy is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Veralto and Energy Recovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Recovery and Veralto 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 Veralto are associated (or correlated) with Energy Recovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Recovery has no effect on the direction of Veralto i.e., Veralto and Energy Recovery go up and down completely randomly.

Pair Corralation between Veralto and Energy Recovery

Given the investment horizon of 90 days Veralto is expected to under-perform the Energy Recovery. But the stock apears to be less risky and, when comparing its historical volatility, Veralto is 3.36 times less risky than Energy Recovery. The stock trades about -0.05 of its potential returns per unit of risk. The Energy Recovery is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,624  in Energy Recovery on August 30, 2024 and sell it today you would lose (104.00) from holding Energy Recovery or give up 6.4% of portfolio value over 90 days.

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

Veralto  vs.  Energy Recovery

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 recent stock price disarray, may contribute to short-term losses for the investors.

Energy Recovery

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Veralto and Energy Recovery

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

The idea behind Veralto and Energy Recovery 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.