Correlation Between Hillenbrand and Watts Water

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

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

Diversification Opportunities for Hillenbrand and Watts Water

0.39

Correlation Coefficient

Hillenbrand  Watts Water

Weak diversification

The 3 months correlation between Hillenbrand and Watts is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Hillenbrand 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 Hillenbrand 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 Hillenbrand 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 Hillenbrand i.e., Hillenbrand and Watts Water go up and down completely randomly.

Pair Corralation between Hillenbrand and Watts Water

Allowing for the 90-day total investment horizon Hillenbrand is expected to generate 1.77 times less return on investment than Watts Water. In addition to that, Hillenbrand is 1.19 times more volatile than Watts Water Technologies. It trades about 0.03 of its total potential returns per unit of risk. Watts Water Technologies is currently generating about 0.07 per unit of volatility. If you would invest  14,721  in Watts Water Technologies on January 31, 2024 and sell it today you would earn a total of  5,459  from holding Watts Water Technologies or generate 37.08% return on investment over 90 days.

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

Hillenbrand  vs.  Watts Water Technologies

Hillenbrand

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hillenbrand are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Hillenbrand may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Watts Water Technologies

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Watts Water Technologies are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Watts Water is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Hillenbrand and Watts Water

The main advantage of trading using opposite Hillenbrand and Watts Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hillenbrand 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 Hillenbrand 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.