Correlation Between Grand Canyon and Carpenter Technology

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

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

Diversification Opportunities for Grand Canyon and Carpenter Technology

0.9

Correlation Coefficient

Grand Canyon  Carpenter Technology

Almost no diversification

The 3 months correlation between Grand and Carpenter is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Grand Canyon Education and Carpenter Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carpenter Technology and Grand Canyon 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 Grand Canyon Education 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 Grand Canyon i.e., Grand Canyon and Carpenter Technology go up and down completely randomly.

Pair Corralation between Grand Canyon and Carpenter Technology

Assuming the 90 days trading horizon Grand Canyon Education is expected to generate 0.88 times more return on investment than Carpenter Technology. However, Grand Canyon Education is 1.14 times less risky than Carpenter Technology. It trades about 0.13 of its potential returns per unit of risk. Carpenter Technology is currently generating about 0.07 per unit of risk. If you would invest  12,700  in Grand Canyon Education on September 26, 2024 and sell it today you would earn a total of  2,600  from holding Grand Canyon Education or generate 20.47% return on investment over 90 days.

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

Grand Canyon Education  vs.  Carpenter Technology

Grand Canyon Education

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grand Canyon Education are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Grand Canyon unveiled solid returns over the last few months and may actually be approaching a breakup point.

Carpenter Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Carpenter Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Grand Canyon and Carpenter Technology

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

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.