Correlation Between Woodward and Ducommun Incorporated

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

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

Diversification Opportunities for Woodward and Ducommun Incorporated

0.74

Correlation Coefficient

Woodward  Ducommun Incorporated

Poor diversification

The 3 months correlation between Woodward and Ducommun is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Woodward and Ducommun Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ducommun Incorporated and Woodward 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 Woodward are associated (or correlated) with Ducommun Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ducommun Incorporated has no effect on the direction of Woodward i.e., Woodward and Ducommun Incorporated go up and down completely randomly.

Pair Corralation between Woodward and Ducommun Incorporated

Considering the 90-day investment horizon Woodward is expected to generate 0.88 times more return on investment than Ducommun Incorporated. However, Woodward is 1.14 times less risky than Ducommun Incorporated. It trades about 0.13 of its potential returns per unit of risk. Ducommun Incorporated is currently generating about 0.06 per unit of risk. If you would invest  15,914  in Woodward on September 2, 2024 and sell it today you would earn a total of  2,118  from holding Woodward or generate 13.31% return on investment over 90 days.

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

Woodward  vs.  Ducommun Incorporated

Woodward

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Woodward are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Woodward exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ducommun Incorporated

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ducommun Incorporated are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, Ducommun Incorporated may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Woodward and Ducommun Incorporated

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

The idea behind Woodward and Ducommun Incorporated 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.