Correlation Between Babcock Wilcox and Carpenter Technology

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

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

Diversification Opportunities for Babcock Wilcox and Carpenter Technology

-0.07

Correlation Coefficient

Babcock Wilcox  Carpenter Technology

Good diversification

The 3 months correlation between Babcock and Carpenter is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Babcock Wilcox Enterprises and Carpenter Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carpenter Technology and Babcock Wilcox 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 Babcock Wilcox Enterprises 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 Babcock Wilcox i.e., Babcock Wilcox and Carpenter Technology go up and down completely randomly.

Pair Corralation between Babcock Wilcox and Carpenter Technology

Allowing for the 90-day total investment horizon Babcock Wilcox is expected to generate 9.3 times less return on investment than Carpenter Technology. In addition to that, Babcock Wilcox is 2.86 times more volatile than Carpenter Technology. It trades about 0.01 of its total potential returns per unit of risk. Carpenter Technology is currently generating about 0.33 per unit of volatility. If you would invest  6,490  in Carpenter Technology on March 3, 2024 and sell it today you would earn a total of  4,597  from holding Carpenter Technology or generate 70.83% return on investment over 90 days.

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

Babcock Wilcox Enterprises  vs.  Carpenter Technology

Babcock Wilcox Enter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Babcock Wilcox Enterprises has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Babcock Wilcox is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Carpenter Technology

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Carpenter Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Babcock Wilcox and Carpenter Technology

The main advantage of trading using opposite Babcock Wilcox and Carpenter Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Babcock Wilcox 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 Babcock Wilcox Enterprises 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.