Correlation Between Crane and Barnes
Can any of the company-specific risk be diversified away by investing in both Crane and Barnes 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 Barnes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Crane Company and Barnes Group, you can compare the effects of market volatilities on Crane and Barnes 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 Barnes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crane and Barnes.
Diversification Opportunities for Crane and Barnes
Poor diversification
The 3 months correlation between Crane and Barnes is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and Barnes Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barnes Group 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 Barnes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barnes Group has no effect on the direction of Crane i.e., Crane and Barnes go up and down completely randomly.
Pair Corralation between Crane and Barnes
Allowing for the 90-day total investment horizon Crane Company is expected to under-perform the Barnes. But the stock apears to be less risky and, when comparing its historical volatility, Crane Company is 2.14 times less risky than Barnes. The stock trades about -0.11 of its potential returns per unit of risk. The Barnes Group is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 3,709 in Barnes Group on January 20, 2024 and sell it today you would lose (101.00) from holding Barnes Group or give up 2.72% 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. Barnes Group
Performance |
| Timeline |
| Crane Company |
| Barnes Group |
Crane and Barnes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Crane and Barnes
The main advantage of trading using opposite Crane and Barnes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crane position performs unexpectedly, Barnes 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 Barnes will offset losses from the drop in Barnes' long position.The idea behind Crane Company and Barnes Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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