Correlation Between Graham and Tennant

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

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

Diversification Opportunities for Graham and Tennant

-0.57

Correlation Coefficient

Graham  Tennant

Excellent diversification

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

Pair Corralation between Graham and Tennant

Considering the 90-day investment horizon Graham is expected to generate 1.68 times more return on investment than Tennant. However, Graham is 1.68 times more volatile than Tennant Company. It trades about 0.22 of its potential returns per unit of risk. Tennant Company is currently generating about -0.06 per unit of risk. If you would invest  2,953  in Graham on September 13, 2024 and sell it today you would earn a total of  1,529  from holding Graham or generate 51.78% return on investment over 90 days.

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

Graham  vs.  Tennant Company

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 unsteady technical indicators, Graham displayed solid returns over the last few months and may actually be approaching a breakup point.

Tennant Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tennant Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Graham and Tennant

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

The idea behind Graham and Tennant Company 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.