Correlation Between Gates Industrial and Graham

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

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

Diversification Opportunities for Gates Industrial and Graham

0.91

Correlation Coefficient

Gates Industrial  Graham

Almost no diversification

The 3 months correlation between Gates and Graham is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Gates Industrial and Graham in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graham and Gates Industrial 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 Gates Industrial are associated (or correlated) with Graham. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Graham has no effect on the direction of Gates Industrial i.e., Gates Industrial and Graham go up and down completely randomly.

Pair Corralation between Gates Industrial and Graham

Given the investment horizon of 90 days Gates Industrial is expected to generate 1.66 times less return on investment than Graham. But when comparing it to its historical volatility, Gates Industrial is 1.99 times less risky than Graham. It trades about 0.26 of its potential returns per unit of risk. Graham is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,928  in Graham on September 14, 2024 and sell it today you would earn a total of  1,474  from holding Graham or generate 50.34% return on investment over 90 days.

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

Gates Industrial  vs.  Graham

Gates Industrial

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gates Industrial are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Gates Industrial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Graham

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Graham are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical indicators, Graham displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gates Industrial and Graham

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

The idea behind Gates Industrial and Graham 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.