Correlation Between Carpenter Technology and Liberty Defense

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

By analyzing existing cross correlation between Carpenter Technology and Liberty Defense Holdings, you can compare the effects of market volatilities on Carpenter Technology and Liberty Defense 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 Liberty Defense. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carpenter Technology and Liberty Defense.

Diversification Opportunities for Carpenter Technology and Liberty Defense

-0.83

Correlation Coefficient

Carpenter Technology  Liberty Defense

Pay attention - limited upside

The 3 months correlation between Carpenter and Liberty is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Carpenter Technology and Liberty Defense Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Defense Holdings 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 Liberty Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Defense Holdings has no effect on the direction of Carpenter Technology i.e., Carpenter Technology and Liberty Defense go up and down completely randomly.

Pair Corralation between Carpenter Technology and Liberty Defense

Considering the 90-day investment horizon Carpenter Technology is expected to generate 0.31 times more return on investment than Liberty Defense. However, Carpenter Technology is 3.27 times less risky than Liberty Defense. It trades about 0.16 of its potential returns per unit of risk. Liberty Defense Holdings is currently generating about -0.03 per unit of risk. If you would invest  14,223  in Carpenter Technology on September 13, 2024 and sell it today you would earn a total of  3,879  from holding Carpenter Technology or generate 27.27% return on investment over 90 days.

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

Carpenter Technology  vs.  Liberty Defense Holdings

Carpenter Technology

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Carpenter Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Liberty Defense Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liberty Defense Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Carpenter Technology and Liberty Defense

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

The idea behind Carpenter Technology and Liberty Defense Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.