Correlation Between International Biotechnology and WW Grainger
Can any of the company-specific risk be diversified away by investing in both International Biotechnology 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 International Biotechnology and WW Grainger into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Biotechnology Trust and WW Grainger, you can compare the effects of market volatilities on International Biotechnology 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 International Biotechnology with a short position of WW Grainger. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Biotechnology and WW Grainger.
Diversification Opportunities for International Biotechnology and WW Grainger
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between International and 0IZI is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr and WW Grainger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WW Grainger and International Biotechnology 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 International Biotechnology Trust 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 International Biotechnology i.e., International Biotechnology and WW Grainger go up and down completely randomly.
Pair Corralation between International Biotechnology and WW Grainger
Assuming the 90 days trading horizon International Biotechnology is expected to generate 1.05 times less return on investment than WW Grainger. In addition to that, International Biotechnology is 1.04 times more volatile than WW Grainger. It trades about 0.18 of its total potential returns per unit of risk. WW Grainger is currently generating about 0.2 per unit of volatility. If you would invest 108,586 in WW Grainger on October 25, 2024 and sell it today you would earn a total of 3,784 from holding WW Grainger or generate 3.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 94.74% |
| Values | Daily Returns |
International Biotechnology Tr vs. WW Grainger
Performance |
| Timeline |
| International Biotechnology |
| WW Grainger |
International Biotechnology and WW Grainger Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Biotechnology and WW Grainger
The main advantage of trading using opposite International Biotechnology and WW Grainger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Biotechnology 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 International Biotechnology Trust 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.
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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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