Correlation Between Taylor Devices and Donaldson

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

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

Diversification Opportunities for Taylor Devices and Donaldson

-0.59

Correlation Coefficient

Taylor Devices  Donaldson

Excellent diversification

The 3 months correlation between Taylor and Donaldson is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Taylor Devices and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson and Taylor Devices 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 Taylor Devices 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 Taylor Devices i.e., Taylor Devices and Donaldson go up and down completely randomly.

Pair Corralation between Taylor Devices and Donaldson

Given the investment horizon of 90 days Taylor Devices is expected to generate 1.08 times less return on investment than Donaldson. In addition to that, Taylor Devices is 5.0 times more volatile than Donaldson. It trades about 0.03 of its total potential returns per unit of risk. Donaldson is currently generating about 0.16 per unit of volatility. If you would invest  7,370  in Donaldson on September 4, 2024 and sell it today you would earn a total of  437.00  from holding Donaldson or generate 5.93% return on investment over 90 days.

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

Taylor Devices  vs.  Donaldson

Taylor Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taylor Devices has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Donaldson

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Donaldson are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Donaldson may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Taylor Devices and Donaldson

The main advantage of trading using opposite Taylor Devices and Donaldson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Taylor Devices 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 Taylor Devices 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.