Correlation Between Carpenter Technology and Localiza Rent

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

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

Diversification Opportunities for Carpenter Technology and Localiza Rent

-0.47

Correlation Coefficient

Carpenter Technology  Localiza Rent

Very good diversification

The 3 months correlation between Carpenter and Localiza is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Carpenter Technology and Localiza Rent A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Localiza Rent A and Carpenter Technology 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 Carpenter Technology are associated (or correlated) with Localiza Rent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Localiza Rent A has no effect on the direction of Carpenter Technology i.e., Carpenter Technology and Localiza Rent go up and down completely randomly.

Pair Corralation between Carpenter Technology and Localiza Rent

Considering the 90-day investment horizon Carpenter Technology is expected to generate 0.71 times more return on investment than Localiza Rent. However, Carpenter Technology is 1.41 times less risky than Localiza Rent. It trades about 0.17 of its potential returns per unit of risk. Localiza Rent A is currently generating about -0.11 per unit of risk. If you would invest  13,945  in Carpenter Technology on September 12, 2024 and sell it today you would earn a total of  4,157  from holding Carpenter Technology or generate 29.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Carpenter Technology  vs.  Localiza Rent A

Carpenter Technology

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Carpenter Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Localiza Rent A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Localiza Rent A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Carpenter Technology and Localiza Rent

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

The idea behind Carpenter Technology and Localiza Rent A 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.