Correlation Between Crane and Babcock Wilcox

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

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

Diversification Opportunities for Crane and Babcock Wilcox

0.27

Correlation Coefficient

Crane  Babcock Wilcox

Modest diversification

The 3 months correlation between Crane and Babcock is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and Babcock Wilcox Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter and Crane 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 Crane Company are associated (or correlated) with Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Crane i.e., Crane and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Crane and Babcock Wilcox

Allowing for the 90-day total investment horizon Crane Company is expected to generate 0.53 times more return on investment than Babcock Wilcox. However, Crane Company is 1.9 times less risky than Babcock Wilcox. It trades about -0.08 of its potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about -0.22 per unit of risk. If you would invest  18,208  in Crane Company on November 28, 2024 and sell it today you would lose (2,001) from holding Crane Company or give up 10.99% of portfolio value over 90 days.

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

Crane Company  vs.  Babcock Wilcox Enterprises

Crane Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Crane Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Babcock Wilcox Enter

Risk-Adjusted Performance

Very Weak

Over the last 90 days Babcock Wilcox Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in March 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Crane and Babcock Wilcox

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

The idea behind Crane Company and Babcock Wilcox Enterprises 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.