Correlation Between Giant Manufacturing and Information Technology

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

By analyzing existing cross correlation between Giant Manufacturing Co and Information Technology Total, you can compare the effects of market volatilities on Giant Manufacturing and Information Technology 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 Giant Manufacturing with a short position of Information Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Giant Manufacturing and Information Technology.

Diversification Opportunities for Giant Manufacturing and Information Technology

-0.5

Correlation Coefficient

Giant Manufacturing  Information Technology

Very good diversification

The 3 months correlation between Giant and Information is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Giant Manufacturing Co and Information Technology Total in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Information Technology and Giant Manufacturing 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 Giant Manufacturing Co are associated (or correlated) with Information Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Information Technology has no effect on the direction of Giant Manufacturing i.e., Giant Manufacturing and Information Technology go up and down completely randomly.

Pair Corralation between Giant Manufacturing and Information Technology

Assuming the 90 days trading horizon Giant Manufacturing Co is expected to under-perform the Information Technology. In addition to that, Giant Manufacturing is 1.11 times more volatile than Information Technology Total. It trades about -0.3 of its total potential returns per unit of risk. Information Technology Total is currently generating about 0.01 per unit of volatility. If you would invest  4,470  in Information Technology Total on September 3, 2024 and sell it today you would lose (10.00) from holding Information Technology Total or give up 0.22% of portfolio value over 90 days.

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

Giant Manufacturing Co  vs.  Information Technology Total

Giant Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Giant Manufacturing Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Information Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Information Technology Total has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Information Technology is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Giant Manufacturing and Information Technology

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

The idea behind Giant Manufacturing Co and Information Technology Total 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.