Correlation Between Northwest Pipe and Carpenter Technology

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

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

Diversification Opportunities for Northwest Pipe and Carpenter Technology

0.55

Correlation Coefficient

Northwest Pipe  Carpenter Technology

Very weak diversification

The 3 months correlation between Northwest and Carpenter is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Pipe and Carpenter Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carpenter Technology and Northwest Pipe 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 Northwest Pipe 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 Northwest Pipe i.e., Northwest Pipe and Carpenter Technology go up and down completely randomly.

Pair Corralation between Northwest Pipe and Carpenter Technology

Given the investment horizon of 90 days Northwest Pipe is expected to under-perform the Carpenter Technology. But the stock apears to be less risky and, when comparing its historical volatility, Northwest Pipe is 1.92 times less risky than Carpenter Technology. The stock trades about -0.38 of its potential returns per unit of risk. The Carpenter Technology is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  7,124  in Carpenter Technology on January 28, 2024 and sell it today you would earn a total of  1,276  from holding Carpenter Technology or generate 17.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Northwest Pipe  vs.  Carpenter Technology

Northwest Pipe

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northwest Pipe are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Northwest Pipe is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Carpenter Technology

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 15 (%) 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 Northwest Pipe and Carpenter Technology

The main advantage of trading using opposite Northwest Pipe and Carpenter Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northwest Pipe 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 Northwest Pipe 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.