Correlation Between Watts Water and IDEX

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

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

Diversification Opportunities for Watts Water and IDEX

0.77

Correlation Coefficient

Watts Water  IDEX

Poor diversification

The 3 months correlation between Watts and IDEX is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Watts Water Technologies and IDEX Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDEX and Watts Water 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 Watts Water Technologies 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 Watts Water i.e., Watts Water and IDEX go up and down completely randomly.

Pair Corralation between Watts Water and IDEX

Considering the 90-day investment horizon Watts Water is expected to generate 1.38 times less return on investment than IDEX. But when comparing it to its historical volatility, Watts Water Technologies is 1.07 times less risky than IDEX. It trades about 0.25 of its potential returns per unit of risk. IDEX Corporation is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  20,484  in IDEX Corporation on August 28, 2024 and sell it today you would earn a total of  3,122  from holding IDEX Corporation or generate 15.24% return on investment over 90 days.

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

Watts Water Technologies  vs.  IDEX Corp.

Watts Water Technologies

Risk-Adjusted Performance

11 of 100

Good

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

IDEX

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IDEX Corporation are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, IDEX showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Watts Water and IDEX

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

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.