Correlation Between Crane and Watts Water

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

By analyzing existing cross correlation between Crane Company and Watts Water Technologies, you can compare the effects of market volatilities on Crane and Watts Water 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 Watts Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crane and Watts Water.

Diversification Opportunities for Crane and Watts Water

0.77

Correlation Coefficient

Crane  Watts Water

Poor diversification

The 3 months correlation between Crane and Watts is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and Watts Water Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watts Water Technologies 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 Watts Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Watts Water Technologies has no effect on the direction of Crane i.e., Crane and Watts Water go up and down completely randomly.

Pair Corralation between Crane and Watts Water

Allowing for the 90-day total investment horizon Crane Company is expected to generate 1.28 times more return on investment than Watts Water. However, Crane is 1.28 times more volatile than Watts Water Technologies. It trades about 0.13 of its potential returns per unit of risk. Watts Water Technologies is currently generating about 0.05 per unit of risk. If you would invest  7,914  in Crane Company on August 31, 2024 and sell it today you would earn a total of  10,294  from holding Crane Company or generate 130.07% return on investment over 90 days.

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

Crane Company  vs.  Watts Water Technologies

Crane Company

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Crane Company are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Crane reported solid returns over the last few months and may actually be approaching a breakup point.

Watts Water Technologies

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Watts Water Technologies are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Watts Water may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Crane and Watts Water

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

The idea behind Crane Company and Watts Water Technologies 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.