Correlation Between Espey Mfg and Acuity Brands

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

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

Diversification Opportunities for Espey Mfg and Acuity Brands

0.28

Correlation Coefficient

Espey Mfg  Acuity Brands

Modest diversification

The 3 months correlation between Espey and Acuity is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Espey Mfg Electronics and Acuity Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acuity Brands and Espey Mfg 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 Espey Mfg Electronics are associated (or correlated) with Acuity Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acuity Brands has no effect on the direction of Espey Mfg i.e., Espey Mfg and Acuity Brands go up and down completely randomly.

Pair Corralation between Espey Mfg and Acuity Brands

Considering the 90-day investment horizon Espey Mfg Electronics is expected to under-perform the Acuity Brands. In addition to that, Espey Mfg is 1.74 times more volatile than Acuity Brands. It trades about -0.14 of its total potential returns per unit of risk. Acuity Brands is currently generating about -0.04 per unit of volatility. If you would invest  25,678  in Acuity Brands on March 7, 2024 and sell it today you would lose (950.00) from holding Acuity Brands or give up 3.7% of portfolio value over 90 days.

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

Espey Mfg Electronics  vs.  Acuity Brands

Espey Mfg Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Espey Mfg Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Acuity Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Acuity Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Acuity Brands is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Espey Mfg and Acuity Brands

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

The idea behind Espey Mfg Electronics and Acuity Brands 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.