Correlation Between Graham and IDEX

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

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

Diversification Opportunities for Graham and IDEX

0.8

Correlation Coefficient

Graham  IDEX

Very poor diversification

The 3 months correlation between Graham and IDEX is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Graham and IDEX Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDEX 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 IDEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDEX has no effect on the direction of Graham i.e., Graham and IDEX go up and down completely randomly.

Pair Corralation between Graham and IDEX

Considering the 90-day investment horizon Graham is expected to generate 2.06 times more return on investment than IDEX. However, Graham is 2.06 times more volatile than IDEX Corporation. It trades about 0.22 of its potential returns per unit of risk. IDEX Corporation is currently generating about 0.14 per unit of risk. If you would invest  2,965  in Graham on September 3, 2024 and sell it today you would earn a total of  1,517  from holding Graham or generate 51.16% return on investment over 90 days.

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

Graham  vs.  IDEX Corp.

Graham

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Graham are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical indicators, Graham displayed solid returns over the last few months and may actually be approaching a breakup point.

IDEX

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IDEX Corporation are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, IDEX showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Graham and IDEX

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

The idea behind Graham and IDEX Corporation 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 Stocks Directory module to find actively traded stocks across global markets.