Correlation Between Dover and WW Grainger

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

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

Diversification Opportunities for Dover and WW Grainger

-0.06

Correlation Coefficient

Dover  WW Grainger

Good diversification

The 3 months correlation between Dover and GWW is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Dover and WW Grainger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WW Grainger and Dover 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 Dover are associated (or correlated) with WW Grainger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WW Grainger has no effect on the direction of Dover i.e., Dover and WW Grainger go up and down completely randomly.

Pair Corralation between Dover and WW Grainger

Considering the 90-day investment horizon Dover is expected to generate 1.0 times more return on investment than WW Grainger. However, Dover is 1.0 times more volatile than WW Grainger. It trades about 0.22 of its potential returns per unit of risk. WW Grainger is currently generating about 0.02 per unit of risk. If you would invest  16,359  in Dover on February 23, 2024 and sell it today you would earn a total of  2,396  from holding Dover or generate 14.65% return on investment over 90 days.

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

Dover  vs.  WW Grainger

Dover

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dover are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Dover showed solid returns over the last few months and may actually be approaching a breakup point.

WW Grainger

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WW Grainger are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, WW Grainger is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Dover and WW Grainger

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

The idea behind Dover and WW Grainger 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.