Correlation Between Xylem and IDEX

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

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

Diversification Opportunities for Xylem and IDEX

0.36

Correlation Coefficient

Xylem  IDEX

Weak diversification

The 3 months correlation between Xylem and IDEX is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Xylem Inc and IDEX Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDEX and Xylem 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 Xylem Inc are associated (or correlated) with IDEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDEX has no effect on the direction of Xylem i.e., Xylem and IDEX go up and down completely randomly.

Pair Corralation between Xylem and IDEX

Considering the 90-day investment horizon Xylem Inc is expected to generate 1.18 times more return on investment than IDEX. However, Xylem is 1.18 times more volatile than IDEX Corporation. It trades about 0.08 of its potential returns per unit of risk. IDEX Corporation is currently generating about 0.04 per unit of risk. If you would invest  7,892  in Xylem Inc on February 7, 2024 and sell it today you would earn a total of  6,028  from holding Xylem Inc or generate 76.38% return on investment over 90 days.

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

Xylem Inc  vs.  IDEX Corp.

Xylem Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xylem Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Xylem disclosed solid returns over the last few months and may actually be approaching a breakup point.

IDEX

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days IDEX Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, IDEX is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Xylem and IDEX

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

The idea behind Xylem Inc and IDEX Corporation 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.