Correlation Between Ferguson Plc and WW Grainger

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

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

Diversification Opportunities for Ferguson Plc and WW Grainger

0.64

Correlation Coefficient

Ferguson Plc  WW Grainger

Poor diversification

The 3 months correlation between Ferguson and GWW is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ferguson Plc and WW Grainger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WW Grainger and Ferguson Plc 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 Ferguson Plc 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 Ferguson Plc i.e., Ferguson Plc and WW Grainger go up and down completely randomly.

Pair Corralation between Ferguson Plc and WW Grainger

Given the investment horizon of 90 days Ferguson Plc is expected to generate 1.09 times more return on investment than WW Grainger. However, Ferguson Plc is 1.09 times more volatile than WW Grainger. It trades about 0.13 of its potential returns per unit of risk. WW Grainger is currently generating about 0.1 per unit of risk. If you would invest  14,184  in Ferguson Plc on February 3, 2024 and sell it today you would earn a total of  7,533  from holding Ferguson Plc or generate 53.11% return on investment over 90 days.

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

Ferguson Plc  vs.  WW Grainger

Ferguson Plc

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ferguson Plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Ferguson Plc reported solid returns over the last few months and may actually be approaching a breakup point.

WW Grainger

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ferguson Plc and WW Grainger

The main advantage of trading using opposite Ferguson Plc and WW Grainger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ferguson Plc 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 Ferguson Plc 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.