Correlation Between Carpenter Technology and Nufarm

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

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

Diversification Opportunities for Carpenter Technology and Nufarm

0.16

Correlation Coefficient

Carpenter Technology  Nufarm

Average diversification

The 3 months correlation between Carpenter and Nufarm is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Carpenter Technology and Nufarm Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nufarm Limited 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 Nufarm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nufarm Limited has no effect on the direction of Carpenter Technology i.e., Carpenter Technology and Nufarm go up and down completely randomly.

Pair Corralation between Carpenter Technology and Nufarm

Assuming the 90 days horizon Carpenter Technology is expected to generate 1.58 times more return on investment than Nufarm. However, Carpenter Technology is 1.58 times more volatile than Nufarm Limited. It trades about 0.16 of its potential returns per unit of risk. Nufarm Limited is currently generating about -0.02 per unit of risk. If you would invest  12,683  in Carpenter Technology on September 17, 2024 and sell it today you would earn a total of  4,117  from holding Carpenter Technology or generate 32.46% return on investment over 90 days.

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

Carpenter Technology  vs.  Nufarm Limited

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. Despite nearly fragile basic indicators, Carpenter Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Nufarm Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nufarm Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Nufarm 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 Nufarm

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

The idea behind Carpenter Technology and Nufarm Limited 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.