Can any of the company-specific risk be diversified away by investing in both Crane NXT and Capstone Green 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 NXT and Capstone Green into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Crane NXT Co and Capstone Green Energy, you can compare the effects of market volatilities on Crane NXT and Capstone Green 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 NXT with a short position of Capstone Green. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crane NXT and Capstone Green.
Diversification Opportunities for Crane NXT and Capstone Green
The 3 months correlation between Crane and Capstone is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Crane NXT Co and Capstone Green Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capstone Green Energy and Crane NXT 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 NXT Co are associated (or correlated) with Capstone Green. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capstone Green Energy has no effect on the direction of Crane NXT i.e., Crane NXT and Capstone Green go up and down completely randomly.
Pair Corralation between Crane NXT and Capstone Green
Considering the 90-day investment horizon Crane NXT Co is expected to generate 0.07 times more return on investment than Capstone Green. However, Crane NXT Co is 13.46 times less risky than Capstone Green. It trades about -0.32 of its potential returns per unit of risk. Capstone Green Energy is currently generating about -0.15 per unit of risk. If you would invest 5,733 in Crane NXT Co on July 6, 2023 and sell it today you would lose (441.00) from holding Crane NXT Co or give up 7.69% of portfolio value over 90 days.
Over the last 90 days Crane NXT Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Crane NXT is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.
Over the last 90 days Capstone Green Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in November 2023. The recent disarray may also be a sign of long period up-swing for the firm insiders.
The main advantage of trading using opposite Crane NXT and Capstone Green positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Crane NXT position performs unexpectedly, Capstone Green 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 Capstone Green will offset losses from the drop in Capstone Green's long position.
The idea behind Crane NXT Co and Capstone Green Energy 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.
Check out your portfolio center. 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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