Correlation Between ITT and Graham
Can any of the company-specific risk be diversified away by investing in both ITT 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 ITT and Graham into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ITT Inc and Graham, you can compare the effects of market volatilities on ITT 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 ITT with a short position of Graham. Check out your portfolio center. Please also check ongoing floating volatility patterns of ITT and Graham.
Diversification Opportunities for ITT and Graham
Poor diversification
The 3 months correlation between ITT and Graham is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding ITT Inc and Graham in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graham and ITT 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 ITT Inc 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 ITT i.e., ITT and Graham go up and down completely randomly.
Pair Corralation between ITT and Graham
Considering the 90-day investment horizon ITT is expected to generate 4.28 times less return on investment than Graham. But when comparing it to its historical volatility, ITT Inc is 2.89 times less risky than Graham. It trades about 0.28 of its potential returns per unit of risk. Graham is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest 2,990 in Graham on August 26, 2024 and sell it today you would earn a total of 1,475 from holding Graham or generate 49.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
ITT Inc vs. Graham
Performance |
| Timeline |
| ITT Inc |
| Graham |
ITT and Graham Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ITT and Graham
The main advantage of trading using opposite ITT and Graham positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITT 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 ITT Inc 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.| Graham vs. Luxfer Holdings PLC | Graham vs. Enerpac Tool Group | Graham vs. Kadant Inc | Graham vs. Omega Flex |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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