Correlation Between Xylem and Dover

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

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

Diversification Opportunities for Xylem and Dover

-0.51

Correlation Coefficient

Xylem  Dover

Excellent diversification

The 3 months correlation between Xylem and Dover is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Xylem Inc and Dover in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dover 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 Dover. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dover has no effect on the direction of Xylem i.e., Xylem and Dover go up and down completely randomly.

Pair Corralation between Xylem and Dover

Considering the 90-day investment horizon Xylem Inc is expected to under-perform the Dover. In addition to that, Xylem is 1.03 times more volatile than Dover. It trades about -0.01 of its total potential returns per unit of risk. Dover is currently generating about 0.1 per unit of volatility. If you would invest  18,621  in Dover on September 12, 2024 and sell it today you would earn a total of  1,499  from holding Dover or generate 8.05% return on investment over 90 days.

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

Xylem Inc  vs.  Dover

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 quite persistent basic indicators, Xylem is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Dover

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dover are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Dover may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Xylem and Dover

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

The idea behind Xylem Inc and Dover 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.