Correlation Between Graco and Xylem

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

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

Diversification Opportunities for Graco and Xylem

0.57

Correlation Coefficient

Graco  Xylem

Very weak diversification

The 3 months correlation between Graco and Xylem is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Graco Inc and Xylem Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xylem Inc 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 Xylem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xylem Inc has no effect on the direction of Graco i.e., Graco and Xylem go up and down completely randomly.

Pair Corralation between Graco and Xylem

Considering the 90-day investment horizon Graco Inc is expected to under-perform the Xylem. But the stock apears to be less risky and, when comparing its historical volatility, Graco Inc is 1.13 times less risky than Xylem. The stock trades about -0.01 of its potential returns per unit of risk. The Xylem Inc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  11,607  in Xylem Inc on December 19, 2024 and sell it today you would earn a total of  524.00  from holding Xylem Inc or generate 4.51% 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.  Xylem Inc

Graco Inc

Risk-Adjusted Performance

Very 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.

Xylem Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xylem Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Xylem is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Graco and Xylem

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

The idea behind Graco Inc and Xylem Inc 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.