Correlation Between Graco and Donaldson

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

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

Diversification Opportunities for Graco and Donaldson

0.42

Correlation Coefficient

Graco  Donaldson

Very weak diversification

The 3 months correlation between Graco and Donaldson is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Graco Inc and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson and Graco 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 Graco Inc are associated (or correlated) with Donaldson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donaldson has no effect on the direction of Graco i.e., Graco and Donaldson go up and down completely randomly.

Pair Corralation between Graco and Donaldson

Considering the 90-day investment horizon Graco is expected to generate 8.7 times less return on investment than Donaldson. In addition to that, Graco is 1.02 times more volatile than Donaldson. It trades about 0.0 of its total potential returns per unit of risk. Donaldson is currently generating about 0.04 per unit of volatility. If you would invest  6,702  in Donaldson on December 29, 2024 and sell it today you would earn a total of  173.00  from holding Donaldson or generate 2.58% return on investment over 90 days.

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

Graco Inc  vs.  Donaldson

Graco Inc

Risk-Adjusted Performance

Weak

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

Donaldson

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Donaldson are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, Donaldson is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Graco and Donaldson

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

The idea behind Graco Inc and Donaldson 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.