Correlation Between GrafTech International and American States

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

By analyzing existing cross correlation between GrafTech International and American States Water, you can compare the effects of market volatilities on GrafTech International and American States 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 American States. Check out your portfolio center. Please also check ongoing floating volatility patterns of GrafTech International and American States.

Diversification Opportunities for GrafTech International and American States

0.76

Correlation Coefficient

GrafTech International  American States

Poor diversification

The 3 months correlation between GrafTech and American is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding GrafTech International and American States Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American States Water 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 American States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American States Water has no effect on the direction of GrafTech International i.e., GrafTech International and American States go up and down completely randomly.

Pair Corralation between GrafTech International and American States

Assuming the 90 days horizon GrafTech International is expected to under-perform the American States. In addition to that, GrafTech International is 4.47 times more volatile than American States Water. It trades about -0.16 of its total potential returns per unit of risk. American States Water is currently generating about -0.26 per unit of volatility. If you would invest  8,105  in American States Water on September 23, 2024 and sell it today you would lose (560.00) from holding American States Water or give up 6.91% of portfolio value over 90 days.

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

GrafTech International  vs.  American States Water

GrafTech International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GrafTech International are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, GrafTech International reported solid returns over the last few months and may actually be approaching a breakup point.

American States Water

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American States Water are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GrafTech International and American States

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

The idea behind GrafTech International and American States Water 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.