Correlation Between Zimmer Biomet and Carpenter Technology

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

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

Diversification Opportunities for Zimmer Biomet and Carpenter Technology

0.88

Correlation Coefficient

Zimmer Biomet  Carpenter Technology

Very poor diversification

The 3 months correlation between Zimmer and Carpenter is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Zimmer Biomet Holdings and Carpenter Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carpenter Technology and Zimmer Biomet 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 Zimmer Biomet 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 Zimmer Biomet i.e., Zimmer Biomet and Carpenter Technology go up and down completely randomly.

Pair Corralation between Zimmer Biomet and Carpenter Technology

Assuming the 90 days horizon Zimmer Biomet is expected to generate 1.87 times less return on investment than Carpenter Technology. But when comparing it to its historical volatility, Zimmer Biomet Holdings is 2.01 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 0.07 of returns per unit of risk over similar time horizon. If you would invest  14,480  in Carpenter Technology on September 26, 2024 and sell it today you would earn a total of  1,620  from holding Carpenter Technology or generate 11.19% return on investment over 90 days.

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

Zimmer Biomet Holdings  vs.  Carpenter Technology

Zimmer Biomet Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zimmer Biomet Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Zimmer Biomet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Zimmer Biomet and Carpenter Technology

The main advantage of trading using opposite Zimmer Biomet and Carpenter Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zimmer Biomet 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 Zimmer Biomet 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.