Correlation Between Pool and WW Grainger

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

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

Diversification Opportunities for Pool and WW Grainger

0.54

Correlation Coefficient

Pool  WW Grainger

Very weak diversification

The 3 months correlation between Pool and GWW is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Pool Corp. and WW Grainger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WW Grainger and Pool 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 Pool Corporation are associated (or correlated) with WW Grainger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WW Grainger has no effect on the direction of Pool i.e., Pool and WW Grainger go up and down completely randomly.

Pair Corralation between Pool and WW Grainger

Given the investment horizon of 90 days Pool is expected to generate 3.45 times less return on investment than WW Grainger. In addition to that, Pool is 1.52 times more volatile than WW Grainger. It trades about 0.03 of its total potential returns per unit of risk. WW Grainger is currently generating about 0.18 per unit of volatility. If you would invest  88,687  in WW Grainger on September 3, 2024 and sell it today you would earn a total of  30,712  from holding WW Grainger or generate 34.63% return on investment over 90 days.

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

Pool Corp.  vs.  WW Grainger

Pool

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pool Corporation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Pool may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WW Grainger

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WW Grainger are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, WW Grainger showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pool and WW Grainger

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

The idea behind Pool Corporation and WW Grainger 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.