Correlation Between Apple and National Grid

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

By analyzing existing cross correlation between Apple Inc and National Grid plc, you can compare the effects of market volatilities on Apple and National Grid 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 Apple with a short position of National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apple and National Grid.

Diversification Opportunities for Apple and National Grid

-0.47

Correlation Coefficient

Apple  National Grid

Very good diversification

The 3 months correlation between Apple and National is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and National Grid plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid plc and Apple 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 Apple Inc are associated (or correlated) with National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid plc has no effect on the direction of Apple i.e., Apple and National Grid go up and down completely randomly.

Pair Corralation between Apple and National Grid

Assuming the 90 days trading horizon Apple Inc is expected to under-perform the National Grid. But the stock apears to be less risky and, when comparing its historical volatility, Apple Inc is 1.37 times less risky than National Grid. The stock trades about -0.13 of its potential returns per unit of risk. The National Grid plc is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  5,600  in National Grid plc on October 13, 2024 and sell it today you would lose (100.00) from holding National Grid plc or give up 1.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

Apple Inc  vs.  National Grid plc

Apple Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, Apple may actually be approaching a critical reversion point that can send shares even higher in February 2025.

National Grid plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Grid plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, National Grid is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Apple and National Grid

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

The idea behind Apple Inc and National Grid plc 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.