Correlation Between Vestas Wind and Donaldson

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

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

Diversification Opportunities for Vestas Wind and Donaldson

0.04

Correlation Coefficient

Vestas Wind  Donaldson

Significant diversification

The 3 months correlation between Vestas and Donaldson is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson and Vestas Wind 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 Vestas Wind Systems 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 Vestas Wind i.e., Vestas Wind and Donaldson go up and down completely randomly.

Pair Corralation between Vestas Wind and Donaldson

Assuming the 90 days horizon Vestas Wind Systems is expected to under-perform the Donaldson. In addition to that, Vestas Wind is 2.73 times more volatile than Donaldson. It trades about -0.19 of its total potential returns per unit of risk. Donaldson is currently generating about -0.09 per unit of volatility. If you would invest  7,343  in Donaldson on September 30, 2024 and sell it today you would lose (543.00) from holding Donaldson or give up 7.39% of portfolio value over 90 days.

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

Vestas Wind Systems  vs.  Donaldson

Vestas Wind Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vestas Wind Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 Vestas Wind and Donaldson

The main advantage of trading using opposite Vestas Wind and Donaldson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vestas Wind 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 Vestas Wind Systems 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.