Correlation Between Carpenter Technology and Principal Solar

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

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

Diversification Opportunities for Carpenter Technology and Principal Solar

0.08

Correlation Coefficient

Carpenter Technology  Principal Solar

Significant diversification

The 3 months correlation between Carpenter and Principal is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Carpenter Technology and Principal Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Solar 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 Principal Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Solar has no effect on the direction of Carpenter Technology i.e., Carpenter Technology and Principal Solar go up and down completely randomly.

Pair Corralation between Carpenter Technology and Principal Solar

Considering the 90-day investment horizon Carpenter Technology is expected to generate 68.34 times less return on investment than Principal Solar. But when comparing it to its historical volatility, Carpenter Technology is 16.26 times less risky than Principal Solar. It trades about 0.05 of its potential returns per unit of risk. Principal Solar is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Principal Solar on December 23, 2024 and sell it today you would earn a total of  0.03  from holding Principal Solar or generate 300.0% return on investment over 90 days.

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

Carpenter Technology  vs.  Principal Solar

Carpenter Technology

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 3 (%) 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 April 2025.

Principal Solar

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Solar are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Principal Solar showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carpenter Technology and Principal Solar

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

The idea behind Carpenter Technology and Principal Solar 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.