Correlation Between Global Industrial and WW Grainger

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

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

Diversification Opportunities for Global Industrial and WW Grainger

-0.59

Correlation Coefficient

Global Industrial  WW Grainger

Excellent diversification

The 3 months correlation between Global and GWW is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Global Industrial Co and WW Grainger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WW Grainger and Global Industrial 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 Global Industrial Co 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 Global Industrial i.e., Global Industrial and WW Grainger go up and down completely randomly.

Pair Corralation between Global Industrial and WW Grainger

Considering the 90-day investment horizon Global Industrial Co is expected to under-perform the WW Grainger. In addition to that, Global Industrial is 1.68 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 0.14 per unit of volatility. If you would invest  77,998  in WW Grainger on August 26, 2024 and sell it today you would earn a total of  42,667  from holding WW Grainger or generate 54.7% return on investment over 90 days.

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

Global Industrial Co  vs.  WW Grainger

Global Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Industrial Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

WW Grainger

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WW Grainger are ranked lower than 18 (%) 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 Global Industrial and WW Grainger

The main advantage of trading using opposite Global Industrial and WW Grainger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Industrial 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 Global Industrial Co 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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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.