Correlation Between ESAB Corp and Carpenter Technology

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

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

Diversification Opportunities for ESAB Corp and Carpenter Technology

0.41

Correlation Coefficient

ESAB Corp  Carpenter Technology

Very weak diversification

The 3 months correlation between ESAB and Carpenter is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding ESAB Corp and Carpenter Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carpenter Technology and ESAB Corp 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 ESAB Corp are associated (or correlated) with Carpenter Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carpenter Technology has no effect on the direction of ESAB Corp i.e., ESAB Corp and Carpenter Technology go up and down completely randomly.

Pair Corralation between ESAB Corp and Carpenter Technology

Given the investment horizon of 90 days ESAB Corp is expected to under-perform the Carpenter Technology. But the stock apears to be less risky and, when comparing its historical volatility, ESAB Corp is 1.51 times less risky than Carpenter Technology. The stock trades about -0.02 of its potential returns per unit of risk. The Carpenter Technology is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  16,715  in Carpenter Technology on December 30, 2024 and sell it today you would earn a total of  1,413  from holding Carpenter Technology or generate 8.45% return on investment over 90 days.

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

ESAB Corp  vs.  Carpenter Technology

ESAB Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ESAB Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ESAB Corp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Carpenter Technology

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 4 (%) 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.

Pair Trading with ESAB Corp and Carpenter Technology

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

The idea behind ESAB Corp and Carpenter Technology 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.