Correlation Between Xylem and Barnes

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

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

Diversification Opportunities for Xylem and Barnes

-0.74

Correlation Coefficient

Xylem  Barnes

Pay attention - limited upside

The 3 months correlation between Xylem and Barnes is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Xylem Inc and Barnes Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barnes Group and Xylem 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 Xylem Inc are associated (or correlated) with Barnes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barnes Group has no effect on the direction of Xylem i.e., Xylem and Barnes go up and down completely randomly.

Pair Corralation between Xylem and Barnes

Considering the 90-day investment horizon Xylem Inc is expected to generate 14.47 times more return on investment than Barnes. However, Xylem is 14.47 times more volatile than Barnes Group. It trades about 0.11 of its potential returns per unit of risk. Barnes Group is currently generating about 0.3 per unit of risk. If you would invest  11,751  in Xylem Inc on October 22, 2024 and sell it today you would earn a total of  215.00  from holding Xylem Inc or generate 1.83% return on investment over 90 days.

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

Xylem Inc  vs.  Barnes Group

Xylem Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xylem Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Barnes Group

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Barnes Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Barnes is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Xylem and Barnes

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

The idea behind Xylem Inc and Barnes Group 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.