Correlation Between Global Industrial and Applied Industrial

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

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

Diversification Opportunities for Global Industrial and Applied Industrial

0.61

Correlation Coefficient

Global Industrial  Applied Industrial

Poor diversification

The 3 months correlation between Global and Applied is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Global Industrial Co and Applied Industrial Technologie in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Industrial and Global Industrial 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 Global Industrial Co are associated (or correlated) with Applied Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Industrial has no effect on the direction of Global Industrial i.e., Global Industrial and Applied Industrial go up and down completely randomly.

Pair Corralation between Global Industrial and Applied Industrial

Considering the 90-day investment horizon Global Industrial Co is expected to under-perform the Applied Industrial. But the stock apears to be less risky and, when comparing its historical volatility, Global Industrial Co is 1.14 times less risky than Applied Industrial. The stock trades about -0.07 of its potential returns per unit of risk. The Applied Industrial Technologies is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  23,824  in Applied Industrial Technologies on December 28, 2024 and sell it today you would lose (1,271) from holding Applied Industrial Technologies or give up 5.33% of portfolio value over 90 days.

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

Global Industrial Co  vs.  Applied Industrial Technologie

Global Industrial

Risk-Adjusted Performance

Very Weak

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

Applied Industrial

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Global Industrial and Applied Industrial

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

The idea behind Global Industrial Co and Applied Industrial Technologies 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.