Correlation Between Tredegar and ESAB Corp

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

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

Diversification Opportunities for Tredegar and ESAB Corp

0.78

Correlation Coefficient

Tredegar  ESAB Corp

Poor diversification

The 3 months correlation between Tredegar and ESAB is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Tredegar and ESAB Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESAB Corp and Tredegar 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 Tredegar are associated (or correlated) with ESAB Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESAB Corp has no effect on the direction of Tredegar i.e., Tredegar and ESAB Corp go up and down completely randomly.

Pair Corralation between Tredegar and ESAB Corp

Allowing for the 90-day total investment horizon Tredegar is expected to generate 1.24 times less return on investment than ESAB Corp. In addition to that, Tredegar is 2.61 times more volatile than ESAB Corp. It trades about 0.09 of its total potential returns per unit of risk. ESAB Corp is currently generating about 0.3 per unit of volatility. If you would invest  6,326  in ESAB Corp on January 28, 2024 and sell it today you would earn a total of  4,460  from holding ESAB Corp or generate 70.5% return on investment over 90 days.

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

Tredegar  vs.  ESAB Corp

Tredegar

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tredegar are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Tredegar reported solid returns over the last few months and may actually be approaching a breakup point.

ESAB Corp

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ESAB Corp are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ESAB Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tredegar and ESAB Corp

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

The idea behind Tredegar and ESAB Corp 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.