Correlation Between Cars and First Republic
Can any of the company-specific risk be diversified away by investing in both Cars and First Republic 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 First Republic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and First Republic Bank, you can compare the effects of market volatilities on Cars and First Republic 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 First Republic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and First Republic.
Diversification Opportunities for Cars and First Republic
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between Cars and First is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and First Republic Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Republic Bank 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 First Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Republic Bank has no effect on the direction of Cars i.e., Cars and First Republic go up and down completely randomly.
Pair Corralation between Cars and First Republic
Given the investment horizon of 90 days Cars Inc is expected to generate 0.1 times more return on investment than First Republic. However, Cars Inc is 10.01 times less risky than First Republic. It trades about 0.04 of its potential returns per unit of risk. First Republic Bank is currently generating about -0.08 per unit of risk. If you would invest 1,357 in Cars Inc on August 31, 2024 and sell it today you would earn a total of 613.00 from holding Cars Inc or generate 45.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 30.71% |
| Values | Daily Returns |
Cars Inc vs. First Republic Bank
Performance |
| Timeline |
| Cars Inc |
| First Republic Bank |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Cars and First Republic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cars and First Republic
The main advantage of trading using opposite Cars and First Republic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars position performs unexpectedly, First Republic 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 Republic will offset losses from the drop in First Republic's long position.The idea behind Cars Inc and First Republic Bank 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.| First Republic vs. Magna International | First Republic vs. Contagious Gaming | First Republic vs. BorgWarner | First Republic vs. Cars Inc |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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