Correlation Between AUTO TRADER and First American
Can any of the company-specific risk be diversified away by investing in both AUTO TRADER and First American 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 AUTO TRADER and First American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AUTO TRADER ADR and First American Financial, you can compare the effects of market volatilities on AUTO TRADER and First American 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 AUTO TRADER with a short position of First American. Check out your portfolio center. Please also check ongoing floating volatility patterns of AUTO TRADER and First American.
Diversification Opportunities for AUTO TRADER and First American
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between AUTO and First is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding AUTO TRADER ADR and First American Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First American Financial and AUTO TRADER 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 AUTO TRADER ADR are associated (or correlated) with First American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First American Financial has no effect on the direction of AUTO TRADER i.e., AUTO TRADER and First American go up and down completely randomly.
Pair Corralation between AUTO TRADER and First American
Assuming the 90 days trading horizon AUTO TRADER ADR is expected to under-perform the First American. In addition to that, AUTO TRADER is 1.02 times more volatile than First American Financial. It trades about -0.11 of its total potential returns per unit of risk. First American Financial is currently generating about 0.03 per unit of volatility. If you would invest 5,801 in First American Financial on October 24, 2024 and sell it today you would earn a total of 99.00 from holding First American Financial or generate 1.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
AUTO TRADER ADR vs. First American Financial
Performance |
| Timeline |
| AUTO TRADER ADR |
| First American Financial |
AUTO TRADER and First American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AUTO TRADER and First American
The main advantage of trading using opposite AUTO TRADER and First American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AUTO TRADER position performs unexpectedly, First American 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 First American will offset losses from the drop in First American's long position.| AUTO TRADER vs. Alphabet Class A | AUTO TRADER vs. Alphabet Class A | AUTO TRADER vs. Alphabet | AUTO TRADER vs. Meta Platforms |
| First American vs. SALESFORCE INC CDR | First American vs. FLOW TRADERS LTD | First American vs. CHIBA BANK | First American vs. AUTO TRADER ADR |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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