Correlation Between Crane NXT and Donaldson

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

By analyzing existing cross correlation between Crane NXT Co and Donaldson, you can compare the effects of market volatilities on Crane NXT and Donaldson 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 NXT with a short position of Donaldson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crane NXT and Donaldson.

Diversification Opportunities for Crane NXT and Donaldson

0.28

Correlation Coefficient

Crane NXT  Donaldson

Modest diversification

The 3 months correlation between Crane and Donaldson is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Crane NXT Co and Donaldson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Donaldson and Crane NXT 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 NXT Co are associated (or correlated) with Donaldson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Donaldson has no effect on the direction of Crane NXT i.e., Crane NXT and Donaldson go up and down completely randomly.

Pair Corralation between Crane NXT and Donaldson

Considering the 90-day investment horizon Crane NXT Co is expected to generate 2.06 times more return on investment than Donaldson. However, Crane NXT is 2.06 times more volatile than Donaldson. It trades about 0.11 of its potential returns per unit of risk. Donaldson is currently generating about 0.17 per unit of risk. If you would invest  5,601  in Crane NXT Co on September 2, 2024 and sell it today you would earn a total of  667.00  from holding Crane NXT Co or generate 11.91% return on investment over 90 days.

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

Crane NXT Co  vs.  Donaldson

Crane NXT

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Crane NXT Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Crane NXT may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Donaldson

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Donaldson are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal fundamental indicators, Donaldson may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Crane NXT and Donaldson

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

The idea behind Crane NXT Co and Donaldson 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.