Correlation Between WW Grainger and Block

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

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

Diversification Opportunities for WW Grainger and Block

0.84

Correlation Coefficient

WW Grainger  Block

Very poor diversification

The 3 months correlation between GWW and Block is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding WW Grainger and Block Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Block Inc and WW Grainger 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 WW Grainger are associated (or correlated) with Block. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Block Inc has no effect on the direction of WW Grainger i.e., WW Grainger and Block go up and down completely randomly.

Pair Corralation between WW Grainger and Block

Considering the 90-day investment horizon WW Grainger is expected to generate 0.44 times more return on investment than Block. However, WW Grainger is 2.29 times less risky than Block. It trades about -0.28 of its potential returns per unit of risk. Block Inc is currently generating about -0.23 per unit of risk. If you would invest  101,616  in WW Grainger on January 20, 2024 and sell it today you would lose (7,351) from holding WW Grainger or give up 7.23% of portfolio value over 90 days.

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

WW Grainger  vs.  Block Inc

WW Grainger

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WW Grainger are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, WW Grainger may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Block Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Block Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Block may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with WW Grainger and Block

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

The idea behind WW Grainger and Block 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.