Correlation Between ESCO Technologies and Electro Sensors

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

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

Diversification Opportunities for ESCO Technologies and Electro Sensors

0.79

Correlation Coefficient

ESCO Technologies  Electro Sensors

Poor diversification

The 3 months correlation between ESCO and Electro is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding ESCO Technologies and Electro Sensors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electro Sensors 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 Electro Sensors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electro Sensors has no effect on the direction of ESCO Technologies i.e., ESCO Technologies and Electro Sensors go up and down completely randomly.

Pair Corralation between ESCO Technologies and Electro Sensors

Considering the 90-day investment horizon ESCO Technologies is expected to generate 0.75 times more return on investment than Electro Sensors. However, ESCO Technologies is 1.32 times less risky than Electro Sensors. It trades about 0.25 of its potential returns per unit of risk. Electro Sensors is currently generating about 0.11 per unit of risk. If you would invest  11,455  in ESCO Technologies on August 31, 2024 and sell it today you would earn a total of  3,354  from holding ESCO Technologies or generate 29.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	92.06%
Values	Daily Returns

ESCO Technologies  vs.  Electro Sensors

ESCO Technologies

Risk-Adjusted Performance

19 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ESCO Technologies are ranked lower than 19 (%) 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.

Electro Sensors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Electro Sensors are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Electro Sensors exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ESCO Technologies and Electro Sensors

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

The idea behind ESCO Technologies and Electro Sensors 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.