Correlation Between Ducommun Incorporated and Woodward

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

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

Diversification Opportunities for Ducommun Incorporated and Woodward

0.4

Correlation Coefficient

Ducommun Incorporated  Woodward

Very weak diversification

The 3 months correlation between Ducommun and Woodward is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ducommun Incorporated and Woodward in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woodward and Ducommun Incorporated 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 Ducommun Incorporated are associated (or correlated) with Woodward. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woodward has no effect on the direction of Ducommun Incorporated i.e., Ducommun Incorporated and Woodward go up and down completely randomly.

Pair Corralation between Ducommun Incorporated and Woodward

Considering the 90-day investment horizon Ducommun Incorporated is expected to generate 1.71 times more return on investment than Woodward. However, Ducommun Incorporated is 1.71 times more volatile than Woodward. It trades about 0.13 of its potential returns per unit of risk. Woodward is currently generating about 0.18 per unit of risk. If you would invest  4,956  in Ducommun Incorporated on February 1, 2024 and sell it today you would earn a total of  479.00  from holding Ducommun Incorporated or generate 9.67% return on investment over 90 days.

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

Ducommun Incorporated  vs.  Woodward

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 June 2024.

Woodward

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Woodward are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Woodward exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ducommun Incorporated and Woodward

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

The idea behind Ducommun Incorporated and Woodward 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.