Correlation Between Graham and American Superconductor

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

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

Diversification Opportunities for Graham and American Superconductor

0.67

Correlation Coefficient

Graham  American Superconductor

Poor diversification

The 3 months correlation between Graham and American is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Graham and American Superconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Superconductor and Graham 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 Graham are associated (or correlated) with American Superconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Superconductor has no effect on the direction of Graham i.e., Graham and American Superconductor go up and down completely randomly.

Pair Corralation between Graham and American Superconductor

Considering the 90-day investment horizon Graham is expected to under-perform the American Superconductor. But the stock apears to be less risky and, when comparing its historical volatility, Graham is 1.7 times less risky than American Superconductor. The stock trades about -0.17 of its potential returns per unit of risk. The American Superconductor is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,520  in American Superconductor on December 28, 2024 and sell it today you would lose (642.00) from holding American Superconductor or give up 25.48% of portfolio value over 90 days.

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

Graham  vs.  American Superconductor

Graham

Risk-Adjusted Performance

Very Weak

Over the last 90 days Graham has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

American Superconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Superconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Graham and American Superconductor

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

The idea behind Graham and American Superconductor 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.