Correlation Between Crane and CSW Industrials

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

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

Diversification Opportunities for Crane and CSW Industrials

0.77

Correlation Coefficient

Crane  CSW Industrials

Poor diversification

The 3 months correlation between Crane and CSW is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and CSW Industrials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSW Industrials and Crane 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 Company are associated (or correlated) with CSW Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSW Industrials has no effect on the direction of Crane i.e., Crane and CSW Industrials go up and down completely randomly.

Pair Corralation between Crane and CSW Industrials

Allowing for the 90-day total investment horizon Crane Company is expected to generate 1.67 times more return on investment than CSW Industrials. However, Crane is 1.67 times more volatile than CSW Industrials. It trades about 0.18 of its potential returns per unit of risk. CSW Industrials is currently generating about 0.14 per unit of risk. If you would invest  13,498  in Crane Company on January 30, 2024 and sell it today you would earn a total of  937.00  from holding Crane Company or generate 6.94% return on investment over 90 days.

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

Crane Company  vs.  CSW Industrials

Crane Company

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Crane Company are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Crane reported solid returns over the last few months and may actually be approaching a breakup point.

CSW Industrials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CSW Industrials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, CSW Industrials may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Crane and CSW Industrials

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

The idea behind Crane Company and CSW Industrials 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.