Correlation Between Carpenter Technology and Shell PLC

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

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

Diversification Opportunities for Carpenter Technology and Shell PLC

-0.43

Correlation Coefficient

Carpenter Technology  Shell PLC

Very good diversification

The 3 months correlation between Carpenter and Shell is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Carpenter Technology and Shell PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC 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 Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC has no effect on the direction of Carpenter Technology i.e., Carpenter Technology and Shell PLC go up and down completely randomly.

Pair Corralation between Carpenter Technology and Shell PLC

Considering the 90-day investment horizon Carpenter Technology is expected to generate 1.17 times more return on investment than Shell PLC. However, Carpenter Technology is 1.17 times more volatile than Shell PLC. It trades about 0.13 of its potential returns per unit of risk. Shell PLC is currently generating about 0.03 per unit of risk. If you would invest  3,694  in Carpenter Technology on September 13, 2024 and sell it today you would earn a total of  14,301  from holding Carpenter Technology or generate 387.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Carpenter Technology  vs.  Shell PLC

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.

Shell PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shell PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Shell PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Carpenter Technology and Shell PLC

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

The idea behind Carpenter Technology and Shell PLC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.