Correlation Between Hilton Worldwide and Carpenter Technology

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

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

Diversification Opportunities for Hilton Worldwide and Carpenter Technology

0.9

Correlation Coefficient

Hilton Worldwide  Carpenter Technology

Almost no diversification

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

Pair Corralation between Hilton Worldwide and Carpenter Technology

Assuming the 90 days trading horizon Hilton Worldwide Holdings is expected to generate 0.61 times more return on investment than Carpenter Technology. However, Hilton Worldwide Holdings is 1.63 times less risky than Carpenter Technology. It trades about -0.08 of its potential returns per unit of risk. Carpenter Technology is currently generating about -0.31 per unit of risk. If you would invest  24,350  in Hilton Worldwide Holdings on September 25, 2024 and sell it today you would lose (480.00) from holding Hilton Worldwide Holdings or give up 1.97% of portfolio value over 90 days.

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

Hilton Worldwide Holdings  vs.  Carpenter Technology

Hilton Worldwide Holdings

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hilton Worldwide Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hilton Worldwide reported solid returns over the last few months and may actually be approaching a breakup point.

Carpenter Technology

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Carpenter Technology are ranked lower than 6 (%) 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 Hilton Worldwide and Carpenter Technology

The main advantage of trading using opposite Hilton Worldwide and Carpenter Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hilton Worldwide 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 Hilton Worldwide Holdings 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..