Correlation Between ESCO Technologies and Codan

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

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

Diversification Opportunities for ESCO Technologies and Codan

0.4

Correlation Coefficient

ESCO Technologies  Codan

Very weak diversification

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

Pair Corralation between ESCO Technologies and Codan

Considering the 90-day investment horizon ESCO Technologies is expected to generate 3.25 times less return on investment than Codan. But when comparing it to its historical volatility, ESCO Technologies is 1.98 times less risky than Codan. It trades about 0.07 of its potential returns per unit of risk. Codan Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. 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

ESCO Technologies  vs.  Codan Limited

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.

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.

Pair Trading with ESCO Technologies and Codan

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

The idea behind ESCO Technologies and Codan Limited 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 Stocks Directory module to find actively traded stocks across global markets.