Correlation Between Generac Holdings and Donaldson

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

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

Diversification Opportunities for Generac Holdings and Donaldson

0.77

Correlation Coefficient

Generac Holdings  Donaldson

Poor diversification

The 3 months correlation between Generac and Donaldson is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Generac Holdings and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson and Generac Holdings 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 Generac Holdings are associated (or correlated) with Donaldson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donaldson has no effect on the direction of Generac Holdings i.e., Generac Holdings and Donaldson go up and down completely randomly.

Pair Corralation between Generac Holdings and Donaldson

Given the investment horizon of 90 days Generac Holdings is expected to generate 1.73 times more return on investment than Donaldson. However, Generac Holdings is 1.73 times more volatile than Donaldson. It trades about 0.06 of its potential returns per unit of risk. Donaldson is currently generating about -0.01 per unit of risk. If you would invest  13,730  in Generac Holdings on September 30, 2024 and sell it today you would earn a total of  1,837  from holding Generac Holdings or generate 13.38% return on investment over 90 days.

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

Generac Holdings  vs.  Donaldson

Generac Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Donaldson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Donaldson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Generac Holdings and Donaldson

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

The idea behind Generac Holdings and Donaldson 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.