Correlation Between Crane and HP

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

By analyzing existing cross correlation between Crane Company and HP Inc, you can compare the effects of market volatilities on Crane and HP 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 Crane with a short position of HP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crane and HP.

Diversification Opportunities for Crane and HP

0.38

Correlation Coefficient

Crane  HP

Weak diversification

The 3 months correlation between Crane and HP is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Crane Company and HP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HP Inc and Crane 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 Crane Company are associated (or correlated) with HP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HP Inc has no effect on the direction of Crane i.e., Crane and HP go up and down completely randomly.

Pair Corralation between Crane and HP

Allowing for the 90-day total investment horizon Crane Company is expected to generate 1.39 times more return on investment than HP. However, Crane is 1.39 times more volatile than HP Inc. It trades about 0.1 of its potential returns per unit of risk. HP Inc is currently generating about -0.05 per unit of risk. If you would invest  9,304  in Crane Company on January 23, 2024 and sell it today you would earn a total of  3,769  from holding Crane Company or generate 40.51% return on investment over 90 days.

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

Crane Company  vs.  HP Inc

Crane Company

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Crane Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Crane may actually be approaching a critical reversion point that can send shares even higher in May 2024.

HP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, HP is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Crane and HP

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

The idea behind Crane Company and HP Inc 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.