Correlation Between Graham and ITT

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

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

Diversification Opportunities for Graham and ITT

0.73

Correlation Coefficient

Graham  ITT

Poor diversification

The 3 months correlation between Graham and ITT is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Graham and ITT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITT Inc 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 ITT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITT Inc has no effect on the direction of Graham i.e., Graham and ITT go up and down completely randomly.

Pair Corralation between Graham and ITT

Considering the 90-day investment horizon Graham is expected to generate 1.74 times more return on investment than ITT. However, Graham is 1.74 times more volatile than ITT Inc. It trades about 0.08 of its potential returns per unit of risk. ITT Inc is currently generating about 0.02 per unit of risk. If you would invest  3,292  in Graham on September 21, 2024 and sell it today you would earn a total of  768.00  from holding Graham or generate 23.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.07%
Values	Daily Returns

Graham  vs.  ITT Inc

Graham

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Graham are ranked lower than 11 (%) 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.

ITT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ITT is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Graham and ITT

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

The idea behind Graham and ITT 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.