Correlation Between Cars and WW Grainger
Can any of the company-specific risk be diversified away by investing in both Cars 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 Cars and WW Grainger into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and WW Grainger, you can compare the effects of market volatilities on Cars 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 Cars with a short position of WW Grainger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and WW Grainger.
Diversification Opportunities for Cars and WW Grainger
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Cars and 0IZI is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and WW Grainger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WW Grainger and Cars 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 Cars Inc 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 Cars i.e., Cars and WW Grainger go up and down completely randomly.
Pair Corralation between Cars and WW Grainger
Assuming the 90 days trading horizon Cars is expected to generate 28.97 times less return on investment than WW Grainger. But when comparing it to its historical volatility, Cars Inc is 4.74 times less risky than WW Grainger. It trades about 0.01 of its potential returns per unit of risk. WW Grainger is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 82,443 in WW Grainger on September 14, 2024 and sell it today you would earn a total of 32,345 from holding WW Grainger or generate 39.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 61.89% |
| Values | Daily Returns |
Cars Inc vs. WW Grainger
Performance |
| Timeline |
| Cars Inc |
| WW Grainger |
Cars and WW Grainger Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cars and WW Grainger
The main advantage of trading using opposite Cars and WW Grainger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars 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.| Cars vs. Southern Copper Corp | Cars vs. Nordic Semiconductor ASA | Cars vs. Elmos Semiconductor SE | Cars vs. Samsung Electronics Co |
| WW Grainger vs. Mindflair Plc | WW Grainger vs. Cairo Communication SpA | WW Grainger vs. Impax Asset Management | WW Grainger vs. Charter Communications Cl |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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