Correlation Between Graham Holdings and CeoTronics

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

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

Diversification Opportunities for Graham Holdings and CeoTronics

0.56

Correlation Coefficient

Graham Holdings  CeoTronics

Very weak diversification

The 3 months correlation between Graham and CeoTronics is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Graham Holdings Co and CeoTronics AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CeoTronics AG and Graham Holdings 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 Holdings Co are associated (or correlated) with CeoTronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CeoTronics AG has no effect on the direction of Graham Holdings i.e., Graham Holdings and CeoTronics go up and down completely randomly.

Pair Corralation between Graham Holdings and CeoTronics

Assuming the 90 days trading horizon Graham Holdings Co is expected to generate 0.77 times more return on investment than CeoTronics. However, Graham Holdings Co is 1.3 times less risky than CeoTronics. It trades about -0.27 of its potential returns per unit of risk. CeoTronics AG is currently generating about -0.46 per unit of risk. If you would invest  90,000  in Graham Holdings Co on October 5, 2024 and sell it today you would lose (6,000) from holding Graham Holdings Co or give up 6.67% of portfolio value over 90 days.

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

Graham Holdings Co  vs.  CeoTronics AG

Graham Holdings

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Graham Holdings Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Graham Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

CeoTronics AG

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Graham Holdings and CeoTronics

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

The idea behind Graham Holdings Co and CeoTronics AG 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.