Correlation Between Masco and Carpenter Technology

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

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

Diversification Opportunities for Masco and Carpenter Technology

0.18

Correlation Coefficient

Masco  Carpenter Technology

Average diversification

The 3 months correlation between Masco and Carpenter is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Masco and Carpenter Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carpenter Technology and Masco 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 Masco 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 Masco i.e., Masco and Carpenter Technology go up and down completely randomly.

Pair Corralation between Masco and Carpenter Technology

Considering the 90-day investment horizon Masco is expected to under-perform the Carpenter Technology. But the stock apears to be less risky and, when comparing its historical volatility, Masco is 1.58 times less risky than Carpenter Technology. The stock trades about -0.33 of its potential returns per unit of risk. The Carpenter Technology is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  7,184  in Carpenter Technology on January 30, 2024 and sell it today you would earn a total of  1,216  from holding Carpenter Technology or generate 16.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Masco  vs.  Carpenter Technology

Masco

Risk-Adjusted Performance

2 of 100

Weak

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

Carpenter Technology

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Carpenter Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Masco and Carpenter Technology

The main advantage of trading using opposite Masco and Carpenter Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Masco 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 Masco 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.