Correlation Between ITT and Franklin Electric

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

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

Diversification Opportunities for ITT and Franklin Electric

0.85

Correlation Coefficient

ITT  Franklin Electric

Very poor diversification

The 3 months correlation between ITT and Franklin is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding ITT Inc and Franklin Electric Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Electric and ITT 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 ITT Inc are associated (or correlated) with Franklin Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Electric has no effect on the direction of ITT i.e., ITT and Franklin Electric go up and down completely randomly.

Pair Corralation between ITT and Franklin Electric

Considering the 90-day investment horizon ITT Inc is expected to generate 0.6 times more return on investment than Franklin Electric. However, ITT Inc is 1.66 times less risky than Franklin Electric. It trades about 0.28 of its potential returns per unit of risk. Franklin Electric Co is currently generating about 0.14 per unit of risk. If you would invest  14,378  in ITT Inc on August 26, 2024 and sell it today you would earn a total of  1,460  from holding ITT Inc or generate 10.15% return on investment over 90 days.

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

ITT Inc  vs.  Franklin Electric Co

ITT Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ITT Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, ITT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Franklin Electric

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Electric Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent essential indicators, Franklin Electric may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with ITT and Franklin Electric

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

The idea behind ITT Inc and Franklin Electric Co 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.