Correlation Between Crane and Enpro Industries

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

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

Diversification Opportunities for Crane and Enpro Industries

0.71

Correlation Coefficient

Crane  Enpro Industries

Poor diversification

The 3 months correlation between Crane and Enpro is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and Enpro Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enpro Industries 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 Enpro Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enpro Industries has no effect on the direction of Crane i.e., Crane and Enpro Industries go up and down completely randomly.

Pair Corralation between Crane and Enpro Industries

Allowing for the 90-day total investment horizon Crane Company is expected to under-perform the Enpro Industries. But the stock apears to be less risky and, when comparing its historical volatility, Crane Company is 1.41 times less risky than Enpro Industries. The stock trades about -0.72 of its potential returns per unit of risk. The Enpro Industries is currently generating about -0.26 of returns per unit of risk over similar time horizon. If you would invest  18,873  in Enpro Industries on September 25, 2024 and sell it today you would lose (1,786) from holding Enpro Industries or give up 9.46% of portfolio value over 90 days.

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

Crane Company  vs.  Enpro Industries

Crane Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Crane Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Crane is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Enpro Industries

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Enpro Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Enpro Industries may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Crane and Enpro Industries

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

The idea behind Crane Company and Enpro Industries 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.