Correlation Between Cars and Boston Beer
Can any of the company-specific risk be diversified away by investing in both Cars and Boston Beer 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 Boston Beer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and Boston Beer, you can compare the effects of market volatilities on Cars and Boston Beer 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 Boston Beer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and Boston Beer.
Diversification Opportunities for Cars and Boston Beer
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Cars and Boston is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Boston Beer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Beer 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 Boston Beer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boston Beer has no effect on the direction of Cars i.e., Cars and Boston Beer go up and down completely randomly.
Pair Corralation between Cars and Boston Beer
Given the investment horizon of 90 days Cars Inc is expected to generate 2.05 times more return on investment than Boston Beer. However, Cars is 2.05 times more volatile than Boston Beer. It trades about 0.44 of its potential returns per unit of risk. Boston Beer is currently generating about 0.34 per unit of risk. If you would invest 1,599 in Cars Inc on September 1, 2024 and sell it today you would earn a total of 388.00 from holding Cars Inc or generate 24.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cars Inc vs. Boston Beer
Performance |
| Timeline |
| Cars Inc |
| Boston Beer |
Cars and Boston Beer Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cars and Boston Beer
The main advantage of trading using opposite Cars and Boston Beer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars position performs unexpectedly, Boston Beer 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 Boston Beer will offset losses from the drop in Boston Beer's long position.The idea behind Cars Inc and Boston Beer 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.| Boston Beer vs. Anheuser Busch Inbev | Boston Beer vs. Molson Coors Beverage | Boston Beer vs. Heineken NV | Boston Beer vs. Ambev SA 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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