Correlation Between Tennant and Watts Water

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

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

Diversification Opportunities for Tennant and Watts Water

-0.12

Correlation Coefficient

Tennant  Watts Water

Good diversification

The 3 months correlation between Tennant and Watts is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Tennant Company and Watts Water Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watts Water Technologies and Tennant 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 Tennant Company are associated (or correlated) with Watts Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Watts Water Technologies has no effect on the direction of Tennant i.e., Tennant and Watts Water go up and down completely randomly.

Pair Corralation between Tennant and Watts Water

Considering the 90-day investment horizon Tennant Company is expected to under-perform the Watts Water. In addition to that, Tennant is 1.22 times more volatile than Watts Water Technologies. It trades about -0.14 of its total potential returns per unit of risk. Watts Water Technologies is currently generating about -0.02 per unit of volatility. If you would invest  20,678  in Watts Water Technologies on September 28, 2024 and sell it today you would lose (463.50) from holding Watts Water Technologies or give up 2.24% of portfolio value over 90 days.

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

Tennant Company  vs.  Watts Water Technologies

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.

Watts Water Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Tennant and Watts Water

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

The idea behind Tennant Company and Watts Water Technologies 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.