Correlation Between Codan and ESCO Technologies

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

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

Diversification Opportunities for Codan and ESCO Technologies

0.4

Correlation Coefficient

Codan  ESCO Technologies

Very weak diversification

The 3 months correlation between Codan and ESCO is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Codan Limited and ESCO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESCO Technologies and Codan 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 Codan Limited are associated (or correlated) with ESCO Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESCO Technologies has no effect on the direction of Codan i.e., Codan and ESCO Technologies go up and down completely randomly.

Pair Corralation between Codan and ESCO Technologies

Assuming the 90 days horizon Codan Limited is expected to generate 1.98 times more return on investment than ESCO Technologies. However, Codan is 1.98 times more volatile than ESCO Technologies. It trades about 0.12 of its potential returns per unit of risk. ESCO Technologies is currently generating about 0.07 per unit of risk. If you would invest  268.00  in Codan Limited on September 5, 2024 and sell it today you would earn a total of  462.00  from holding Codan Limited or generate 172.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	58.59%
Values	Daily Returns

Codan Limited  vs.  ESCO Technologies

Codan Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Codan Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Codan is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ESCO Technologies

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ESCO Technologies are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ESCO Technologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Codan and ESCO Technologies

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

The idea behind Codan Limited and ESCO Technologies 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.