Correlation Between Crane and LiCycle Holdings

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

By analyzing existing cross correlation between Crane Company and LiCycle Holdings Corp, you can compare the effects of market volatilities on Crane and LiCycle Holdings 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 LiCycle Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crane and LiCycle Holdings.

Diversification Opportunities for Crane and LiCycle Holdings

0.65

Correlation Coefficient

Crane  LiCycle Holdings

Poor diversification

The 3 months correlation between Crane and LiCycle is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and LiCycle Holdings Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LiCycle Holdings Corp 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 LiCycle Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LiCycle Holdings Corp has no effect on the direction of Crane i.e., Crane and LiCycle Holdings go up and down completely randomly.

Pair Corralation between Crane and LiCycle Holdings

Allowing for the 90-day total investment horizon Crane Company is expected to generate 0.17 times more return on investment than LiCycle Holdings. However, Crane Company is 5.9 times less risky than LiCycle Holdings. It trades about 0.42 of its potential returns per unit of risk. LiCycle Holdings Corp is currently generating about 0.02 per unit of risk. If you would invest  15,180  in Crane Company on August 24, 2024 and sell it today you would earn a total of  3,136  from holding Crane Company or generate 20.66% 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.  LiCycle Holdings Corp

Crane Company

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Crane Company are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Crane reported solid returns over the last few months and may actually be approaching a breakup point.

LiCycle Holdings Corp

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LiCycle Holdings Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, LiCycle Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Crane and LiCycle Holdings

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

The idea behind Crane Company and LiCycle Holdings Corp 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.