Correlation Between Cars and Extra Space
Can any of the company-specific risk be diversified away by investing in both Cars and Extra Space 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 Cars and Extra Space into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and Extra Space Storage, you can compare the effects of market volatilities on Cars and Extra Space 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 Cars with a short position of Extra Space. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and Extra Space.
Diversification Opportunities for Cars and Extra Space
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Cars and Extra is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage and Cars 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 Cars Inc are associated (or correlated) with Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of Cars i.e., Cars and Extra Space go up and down completely randomly.
Pair Corralation between Cars and Extra Space
Assuming the 90 days trading horizon Cars Inc is expected to generate 1.67 times more return on investment than Extra Space. However, Cars is 1.67 times more volatile than Extra Space Storage. It trades about -0.05 of its potential returns per unit of risk. Extra Space Storage is currently generating about -0.09 per unit of risk. If you would invest 1,928 in Cars Inc on September 14, 2024 and sell it today you would lose (46.00) from holding Cars Inc or give up 2.39% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 81.82% |
| Values | Daily Returns |
Cars Inc vs. Extra Space Storage
Performance |
| Timeline |
| Cars Inc |
| Extra Space Storage |
Cars and Extra Space Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cars and Extra Space
The main advantage of trading using opposite Cars and Extra Space positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars position performs unexpectedly, Extra Space 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 Extra Space will offset losses from the drop in Extra Space's long position.| Cars vs. Southern Copper Corp | Cars vs. Nordic Semiconductor ASA | Cars vs. Elmos Semiconductor SE | Cars vs. Samsung Electronics Co |
| Extra Space vs. Ross Stores | Extra Space vs. Bisichi Mining PLC | Extra Space vs. Hochschild Mining plc | Extra Space vs. AMG Advanced Metallurgical |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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