Correlation Between Crane NXT and Watts Water

Can any of the company-specific risk be diversified away by investing in both Crane NXT and Watts Water 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 Watts Water 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 Watts Water Technologies, you can compare the effects of market volatilities on Crane NXT and Watts Water 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 Watts Water. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crane NXT and Watts Water.

Diversification Opportunities for Crane NXT and Watts Water

-0.3

Correlation Coefficient

Crane NXT  Watts Water

Very good diversification

The 3 months correlation between Crane and Watts is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Crane NXT Co and Watts Water Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Watts Water Technologies 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 Watts Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Watts Water Technologies has no effect on the direction of Crane NXT i.e., Crane NXT and Watts Water go up and down completely randomly.

Pair Corralation between Crane NXT and Watts Water

Considering the 90-day investment horizon Crane NXT Co is expected to under-perform the Watts Water. But the stock apears to be less risky and, when comparing its historical volatility, Crane NXT Co is 1.01 times less risky than Watts Water. The stock trades about -0.09 of its potential returns per unit of risk. The Watts Water Technologies is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  20,331  in Watts Water Technologies on December 27, 2024 and sell it today you would earn a total of  593.00  from holding Watts Water Technologies or generate 2.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Crane NXT Co  vs.  Watts Water Technologies

Crane NXT

Risk-Adjusted Performance

Very Weak

Over the last 90 days Crane NXT Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Watts Water Technologies

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Watts Water Technologies are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Watts Water is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Crane NXT and Watts Water

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

The idea behind Crane NXT Co and Watts Water Technologies 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.