Correlation Between Giant Manufacturing and President Chain

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

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

Diversification Opportunities for Giant Manufacturing and President Chain

0.44

Correlation Coefficient

Giant Manufacturing  President Chain

Very weak diversification

The 3 months correlation between Giant and President is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Giant Manufacturing Co and President Chain Store in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on President Chain Store and Giant Manufacturing 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 Giant Manufacturing Co are associated (or correlated) with President Chain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of President Chain Store has no effect on the direction of Giant Manufacturing i.e., Giant Manufacturing and President Chain go up and down completely randomly.

Pair Corralation between Giant Manufacturing and President Chain

Assuming the 90 days trading horizon Giant Manufacturing Co is expected to generate 2.71 times more return on investment than President Chain. However, Giant Manufacturing is 2.71 times more volatile than President Chain Store. It trades about 0.06 of its potential returns per unit of risk. President Chain Store is currently generating about -0.08 per unit of risk. If you would invest  15,000  in Giant Manufacturing Co on December 2, 2024 and sell it today you would earn a total of  800.00  from holding Giant Manufacturing Co or generate 5.33% return on investment over 90 days.

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

Giant Manufacturing Co  vs.  President Chain Store

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 4 (%) 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.

President Chain Store

Risk-Adjusted Performance

Very Weak

Over the last 90 days President Chain Store has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, President Chain is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Giant Manufacturing and President Chain

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

The idea behind Giant Manufacturing Co and President Chain Store 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.