Correlation Between NET Power and Graco

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

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

Diversification Opportunities for NET Power and Graco

0.63

Correlation Coefficient

NET Power  Graco

Poor diversification

The 3 months correlation between NET and Graco is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding NET Power and Graco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graco Inc and NET 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 NET Power are associated (or correlated) with Graco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Graco Inc has no effect on the direction of NET Power i.e., NET Power and Graco go up and down completely randomly.

Pair Corralation between NET Power and Graco

Given the investment horizon of 90 days NET Power is expected to generate 3.24 times more return on investment than Graco. However, NET Power is 3.24 times more volatile than Graco Inc. It trades about 0.02 of its potential returns per unit of risk. Graco Inc is currently generating about 0.03 per unit of risk. If you would invest  982.00  in NET Power on September 23, 2024 and sell it today you would lose (22.00) from holding NET Power or give up 2.24% of portfolio value over 90 days.

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

NET Power  vs.  Graco Inc

NET Power

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NET Power are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, NET Power reported solid returns over the last few months and may actually be approaching a breakup point.

Graco Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Graco Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Graco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with NET Power and Graco

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

The idea behind NET Power and Graco 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.