Correlation Between GrafTech International and Resideo Technologies

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

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

Diversification Opportunities for GrafTech International and Resideo Technologies

0.67

Correlation Coefficient

GrafTech International  Resideo Technologies

Poor diversification

The 3 months correlation between GrafTech and Resideo is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding GrafTech International and Resideo Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Resideo Technologies and GrafTech International 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 GrafTech International are associated (or correlated) with Resideo Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Resideo Technologies has no effect on the direction of GrafTech International i.e., GrafTech International and Resideo Technologies go up and down completely randomly.

Pair Corralation between GrafTech International and Resideo Technologies

Considering the 90-day investment horizon GrafTech International is expected to generate 2.78 times more return on investment than Resideo Technologies. However, GrafTech International is 2.78 times more volatile than Resideo Technologies. It trades about 0.09 of its potential returns per unit of risk. Resideo Technologies is currently generating about 0.12 per unit of risk. If you would invest  132.00  in GrafTech International on September 30, 2024 and sell it today you would earn a total of  35.00  from holding GrafTech International or generate 26.52% return on investment over 90 days.

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

GrafTech International  vs.  Resideo Technologies

GrafTech International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GrafTech International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, GrafTech International reported solid returns over the last few months and may actually be approaching a breakup point.

Resideo Technologies

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Resideo Technologies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Resideo Technologies demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GrafTech International and Resideo Technologies

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

The idea behind GrafTech International and Resideo Technologies 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.