Correlation Between Crane and Target

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

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

Diversification Opportunities for Crane and Target

0.13

Correlation Coefficient

Crane  Target

Average diversification

The 3 months correlation between Crane and Target is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target 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 Target. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target has no effect on the direction of Crane i.e., Crane and Target go up and down completely randomly.

Pair Corralation between Crane and Target

Allowing for the 90-day total investment horizon Crane Company is expected to generate 0.78 times more return on investment than Target. However, Crane Company is 1.27 times less risky than Target. It trades about 0.17 of its potential returns per unit of risk. Target is currently generating about -0.02 per unit of risk. If you would invest  12,171  in Crane Company on February 23, 2024 and sell it today you would earn a total of  2,444  from holding Crane Company or generate 20.08% return on investment over 90 days.

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

Crane Company  vs.  Target

Crane Company

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Crane Company are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Crane reported solid returns over the last few months and may actually be approaching a breakup point.

Target

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Target is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Crane and Target

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

The idea behind Crane Company and Target 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.