Correlation Between Graco and Mueller Water
Can any of the company-specific risk be diversified away by investing in both Graco and Mueller Water 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 Graco and Mueller Water into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Graco Inc and Mueller Water Products, you can compare the effects of market volatilities on Graco and Mueller Water 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 Graco with a short position of Mueller Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Graco and Mueller Water.
Diversification Opportunities for Graco and Mueller Water
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Graco and Mueller is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Graco Inc and Mueller Water Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mueller Water Products and Graco 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 Graco Inc are associated (or correlated) with Mueller Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mueller Water Products has no effect on the direction of Graco i.e., Graco and Mueller Water go up and down completely randomly.
Pair Corralation between Graco and Mueller Water
Considering the 90-day investment horizon Graco is expected to generate 2.62 times less return on investment than Mueller Water. But when comparing it to its historical volatility, Graco Inc is 1.3 times less risky than Mueller Water. It trades about 0.05 of its potential returns per unit of risk. Mueller Water Products is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,122 in Mueller Water Products on August 24, 2024 and sell it today you would earn a total of 1,375 from holding Mueller Water Products or generate 122.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Graco Inc vs. Mueller Water Products
Performance |
| Timeline |
| Graco Inc |
| Mueller Water Products |
Graco and Mueller Water Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Graco and Mueller Water
The main advantage of trading using opposite Graco and Mueller Water positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Graco position performs unexpectedly, Mueller Water 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 Mueller Water will offset losses from the drop in Mueller Water's long position.The idea behind Graco Inc and Mueller Water Products 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.| Mueller Water vs. Enerpac Tool Group | Mueller Water vs. Luxfer Holdings PLC | Mueller Water vs. John Bean Technologies | Mueller Water vs. CSW Industrials |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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