Correlation Between Crane and Broadwind Energy

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

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

Diversification Opportunities for Crane and Broadwind Energy

-0.79

Correlation Coefficient

Crane  Broadwind Energy

Pay attention - limited upside

The 3 months correlation between Crane and Broadwind is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and Broadwind Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadwind Energy 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 Broadwind Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadwind Energy has no effect on the direction of Crane i.e., Crane and Broadwind Energy go up and down completely randomly.

Pair Corralation between Crane and Broadwind Energy

Allowing for the 90-day total investment horizon Crane Company is expected to generate 0.39 times more return on investment than Broadwind Energy. However, Crane Company is 2.55 times less risky than Broadwind Energy. It trades about 0.46 of its potential returns per unit of risk. Broadwind Energy is currently generating about -0.09 per unit of risk. If you would invest  15,239  in Crane Company on August 28, 2024 and sell it today you would earn a total of  3,241  from holding Crane Company or generate 21.27% return on investment over 90 days.

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

Crane Company  vs.  Broadwind Energy

Crane Company

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Crane Company are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Crane reported solid returns over the last few months and may actually be approaching a breakup point.

Broadwind Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Broadwind Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Crane and Broadwind Energy

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

The idea behind Crane Company and Broadwind Energy 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.