Correlation Between Worthington Industries and ESAB Corp

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

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

Diversification Opportunities for Worthington Industries and ESAB Corp

0.09

Correlation Coefficient

Worthington Industries  ESAB Corp

Significant diversification

The 3 months correlation between Worthington and ESAB is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Worthington Industries and ESAB Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESAB Corp and Worthington Industries 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 Worthington Industries are associated (or correlated) with ESAB Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESAB Corp has no effect on the direction of Worthington Industries i.e., Worthington Industries and ESAB Corp go up and down completely randomly.

Pair Corralation between Worthington Industries and ESAB Corp

Considering the 90-day investment horizon Worthington Industries is expected to generate 1.72 times more return on investment than ESAB Corp. However, Worthington Industries is 1.72 times more volatile than ESAB Corp. It trades about 0.12 of its potential returns per unit of risk. ESAB Corp is currently generating about -0.02 per unit of risk. If you would invest  3,989  in Worthington Industries on December 29, 2024 and sell it today you would earn a total of  1,059  from holding Worthington Industries or generate 26.55% return on investment over 90 days.

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

Worthington Industries  vs.  ESAB Corp

Worthington Industries

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Worthington Industries are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Worthington Industries reported solid returns over the last few months and may actually be approaching a breakup point.

ESAB Corp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Worthington Industries and ESAB Corp

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

The idea behind Worthington Industries and ESAB Corp 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.