Correlation Between ITT and Tennant

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

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

Diversification Opportunities for ITT and Tennant

0.07

Correlation Coefficient

ITT  Tennant

Significant diversification

The 3 months correlation between ITT and Tennant is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding ITT Inc and Tennant Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tennant Company and ITT 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 ITT Inc 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 ITT i.e., ITT and Tennant go up and down completely randomly.

Pair Corralation between ITT and Tennant

Considering the 90-day investment horizon ITT Inc is expected to generate 0.77 times more return on investment than Tennant. However, ITT Inc is 1.3 times less risky than Tennant. It trades about -0.04 of its potential returns per unit of risk. Tennant Company is currently generating about -0.15 per unit of risk. If you would invest  15,024  in ITT Inc on September 26, 2024 and sell it today you would lose (594.00) from holding ITT Inc or give up 3.95% of portfolio value over 90 days.

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

ITT Inc  vs.  Tennant Company

ITT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ITT is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with ITT and Tennant

The main advantage of trading using opposite ITT and Tennant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITT 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 ITT Inc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.