Correlation Between ITM Power and First Graphene

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

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

Diversification Opportunities for ITM Power and First Graphene

0.28

Correlation Coefficient

ITM Power  First Graphene

Modest diversification

The 3 months correlation between ITM and First is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding ITM Power Plc and First Graphene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Graphene and ITM Power 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 ITM Power Plc are associated (or correlated) with First Graphene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Graphene has no effect on the direction of ITM Power i.e., ITM Power and First Graphene go up and down completely randomly.

Pair Corralation between ITM Power and First Graphene

Assuming the 90 days horizon ITM Power Plc is expected to under-perform the First Graphene. But the stock apears to be less risky and, when comparing its historical volatility, ITM Power Plc is 1.83 times less risky than First Graphene. The stock trades about -0.03 of its potential returns per unit of risk. The First Graphene is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  6.79  in First Graphene on October 24, 2024 and sell it today you would lose (3.15) from holding First Graphene or give up 46.39% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

ITM Power Plc  vs.  First Graphene

ITM Power Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITM Power Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

First Graphene

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in First Graphene are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, First Graphene reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ITM Power and First Graphene

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

The idea behind ITM Power Plc and First Graphene 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.