Correlation Between Dover and Tennant

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

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

Diversification Opportunities for Dover and Tennant

-0.39

Correlation Coefficient

Dover  Tennant

Very good diversification

The 3 months correlation between Dover and Tennant is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Dover and Tennant Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tennant Company and Dover 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 Dover are associated (or correlated) with Tennant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tennant Company has no effect on the direction of Dover i.e., Dover and Tennant go up and down completely randomly.

Pair Corralation between Dover and Tennant

Considering the 90-day investment horizon Dover is expected to generate 0.73 times more return on investment than Tennant. However, Dover is 1.37 times less risky than Tennant. It trades about 0.16 of its potential returns per unit of risk. Tennant Company is currently generating about -0.05 per unit of risk. If you would invest  17,980  in Dover on September 2, 2024 and sell it today you would earn a total of  2,610  from holding Dover or generate 14.52% return on investment over 90 days.

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

Dover  vs.  Tennant Company

Dover

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dover are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Dover showed solid returns over the last few months and may actually be approaching a breakup point.

Tennant Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tennant Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Tennant is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dover and Tennant

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

The idea behind Dover and Tennant Company 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.