Correlation Between CARPENTER and 00108WAF7

Can any of the company-specific risk be diversified away by investing in both CARPENTER and 00108WAF7 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 and 00108WAF7 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CARPENTER TECHNOLOGY P and AEP TEX INC, you can compare the effects of market volatilities on CARPENTER and 00108WAF7 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 with a short position of 00108WAF7. Check out your portfolio center. Please also check ongoing floating volatility patterns of CARPENTER and 00108WAF7.

Diversification Opportunities for CARPENTER and 00108WAF7

0.01

Correlation Coefficient

CARPENTER  00108WAF7

Significant diversification

The 3 months correlation between CARPENTER and 00108WAF7 is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding CARPENTER TECHNOLOGY P and AEP TEX INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEP TEX INC and CARPENTER 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 P are associated (or correlated) with 00108WAF7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEP TEX INC has no effect on the direction of CARPENTER i.e., CARPENTER and 00108WAF7 go up and down completely randomly.

Pair Corralation between CARPENTER and 00108WAF7

Assuming the 90 days trading horizon CARPENTER is expected to generate 2109.6 times less return on investment than 00108WAF7. But when comparing it to its historical volatility, CARPENTER TECHNOLOGY P is 248.38 times less risky than 00108WAF7. It trades about 0.01 of its potential returns per unit of risk. AEP TEX INC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,427  in AEP TEX INC on September 21, 2024 and sell it today you would earn a total of  241.00  from holding AEP TEX INC or generate 3.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	63.23%
Values	Daily Returns

CARPENTER TECHNOLOGY P  vs.  AEP TEX INC

CARPENTER TECHNOLOGY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CARPENTER TECHNOLOGY P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CARPENTER is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

AEP TEX INC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AEP TEX INC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, 00108WAF7 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CARPENTER and 00108WAF7

The main advantage of trading using opposite CARPENTER and 00108WAF7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CARPENTER position performs unexpectedly, 00108WAF7 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 00108WAF7 will offset losses from the drop in 00108WAF7's long position.

The idea behind CARPENTER TECHNOLOGY P and AEP TEX INC 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.