Correlation Between Carpenter Technology and Thyssenkrupp

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

By analyzing existing cross correlation between Carpenter Technology and Thyssenkrupp AG ADR, you can compare the effects of market volatilities on Carpenter Technology and Thyssenkrupp 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 Thyssenkrupp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carpenter Technology and Thyssenkrupp.

Diversification Opportunities for Carpenter Technology and Thyssenkrupp

0.59

Correlation Coefficient

Carpenter Technology  Thyssenkrupp

Very weak diversification

The 3 months correlation between Carpenter and Thyssenkrupp is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Carpenter Technology and Thyssenkrupp AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thyssenkrupp AG ADR 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 Thyssenkrupp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thyssenkrupp AG ADR has no effect on the direction of Carpenter Technology i.e., Carpenter Technology and Thyssenkrupp go up and down completely randomly.

Pair Corralation between Carpenter Technology and Thyssenkrupp

Considering the 90-day investment horizon Carpenter Technology is expected to generate 1.83 times less return on investment than Thyssenkrupp. But when comparing it to its historical volatility, Carpenter Technology is 1.28 times less risky than Thyssenkrupp. It trades about 0.05 of its potential returns per unit of risk. Thyssenkrupp AG ADR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  366.00  in Thyssenkrupp AG ADR on September 25, 2024 and sell it today you would earn a total of  49.00  from holding Thyssenkrupp AG ADR or generate 13.39% return on investment over 90 days.

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

Carpenter Technology  vs.  Thyssenkrupp AG ADR

Carpenter Technology

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Carpenter Technology may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Thyssenkrupp AG ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Thyssenkrupp AG ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent primary indicators, Thyssenkrupp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carpenter Technology and Thyssenkrupp

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

The idea behind Carpenter Technology and Thyssenkrupp AG ADR 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.