Correlation Between Carpenter Technology and Guangzhou

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

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

Diversification Opportunities for Carpenter Technology and Guangzhou

0.66

Correlation Coefficient

Carpenter Technology  Guangzhou

Poor diversification

The 3 months correlation between Carpenter and Guangzhou is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Carpenter Technology and Guangzhou RF Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou RF Properties and Carpenter Technology 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 Carpenter Technology are associated (or correlated) with Guangzhou. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou RF Properties has no effect on the direction of Carpenter Technology i.e., Carpenter Technology and Guangzhou go up and down completely randomly.

Pair Corralation between Carpenter Technology and Guangzhou

Considering the 90-day investment horizon Carpenter Technology is expected to generate 0.38 times more return on investment than Guangzhou. However, Carpenter Technology is 2.64 times less risky than Guangzhou. It trades about 0.13 of its potential returns per unit of risk. Guangzhou RF Properties is currently generating about 0.04 per unit of risk. If you would invest  3,506  in Carpenter Technology on September 21, 2024 and sell it today you would earn a total of  13,453  from holding Carpenter Technology or generate 383.71% return on investment over 90 days.

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

Carpenter Technology  vs.  Guangzhou RF Properties

Carpenter Technology

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Carpenter Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Guangzhou RF Properties

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou RF Properties are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical indicators, Guangzhou reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carpenter Technology and Guangzhou

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

The idea behind Carpenter Technology and Guangzhou RF Properties 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.