Correlation Between ITEQ Corp and Giant Manufacturing

Can any of the company-specific risk be diversified away by investing in both ITEQ Corp and Giant Manufacturing 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 ITEQ Corp and Giant Manufacturing into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for ITEQ Corp and Giant Manufacturing

0.26

Correlation Coefficient

ITEQ Corp  Giant Manufacturing

Modest diversification

The 3 months correlation between ITEQ and Giant is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding ITEQ Corp and Giant Manufacturing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Giant Manufacturing and ITEQ Corp 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 ITEQ Corp are associated (or correlated) with Giant Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Giant Manufacturing has no effect on the direction of ITEQ Corp i.e., ITEQ Corp and Giant Manufacturing go up and down completely randomly.

Pair Corralation between ITEQ Corp and Giant Manufacturing

Assuming the 90 days trading horizon ITEQ Corp is expected to generate 1.22 times more return on investment than Giant Manufacturing. However, ITEQ Corp is 1.22 times more volatile than Giant Manufacturing Co. It trades about -0.01 of its potential returns per unit of risk. Giant Manufacturing Co is currently generating about -0.04 per unit of risk. If you would invest  8,450  in ITEQ Corp on December 5, 2024 and sell it today you would lose (1,260) from holding ITEQ Corp or give up 14.91% of portfolio value over 90 days.

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

ITEQ Corp  vs.  Giant Manufacturing Co

ITEQ Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITEQ Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Giant Manufacturing

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Giant Manufacturing Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Giant Manufacturing may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ITEQ Corp and Giant Manufacturing

The main advantage of trading using opposite ITEQ Corp and Giant Manufacturing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ITEQ Corp position performs unexpectedly, Giant Manufacturing 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 Giant Manufacturing will offset losses from the drop in Giant Manufacturing's long position.

The idea behind ITEQ Corp and Giant Manufacturing Co 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.