Correlation Between SMC Corp and Graco

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

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

Diversification Opportunities for SMC Corp and Graco

-0.32

Correlation Coefficient

SMC Corp  Graco

Very good diversification

The 3 months correlation between SMC and Graco is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding SMC Corp Japan and Graco Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graco Inc and SMC Corp 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 SMC Corp Japan 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 SMC Corp i.e., SMC Corp and Graco go up and down completely randomly.

Pair Corralation between SMC Corp and Graco

Assuming the 90 days horizon SMC Corp Japan is expected to under-perform the Graco. In addition to that, SMC Corp is 1.57 times more volatile than Graco Inc. It trades about -0.01 of its total potential returns per unit of risk. Graco Inc is currently generating about 0.02 per unit of volatility. If you would invest  8,387  in Graco Inc on December 27, 2024 and sell it today you would earn a total of  73.00  from holding Graco Inc or generate 0.87% return on investment over 90 days.

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

SMC Corp Japan  vs.  Graco Inc

SMC Corp Japan

Risk-Adjusted Performance

Very Weak

Over the last 90 days SMC Corp Japan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SMC Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Graco Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Graco Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 SMC Corp and Graco

The main advantage of trading using opposite SMC Corp and Graco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMC Corp 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 SMC Corp Japan 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.