Correlation Between China International and Carpenter Technology

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

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

Diversification Opportunities for China International and Carpenter Technology

-0.1

Correlation Coefficient

China International  Carpenter Technology

Good diversification

The 3 months correlation between China and Carpenter is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding China International Marine and Carpenter Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carpenter Technology and China International 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 China International Marine 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 China International i.e., China International and Carpenter Technology go up and down completely randomly.

Pair Corralation between China International and Carpenter Technology

Assuming the 90 days horizon China International Marine is expected to generate 1.4 times more return on investment than Carpenter Technology. However, China International is 1.4 times more volatile than Carpenter Technology. It trades about -0.02 of its potential returns per unit of risk. Carpenter Technology is currently generating about -0.38 per unit of risk. If you would invest  63.00  in China International Marine on September 27, 2024 and sell it today you would lose (1.00) from holding China International Marine or give up 1.59% of portfolio value over 90 days.

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

China International Marine  vs.  Carpenter Technology

China International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China International Marine are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Carpenter Technology

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Carpenter Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China International and Carpenter Technology

The main advantage of trading using opposite China International and Carpenter Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China International 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 China International Marine 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.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.