Correlation Between Cars and New Residential
Can any of the company-specific risk be diversified away by investing in both Cars and New Residential 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 New Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and New Residential Investment, you can compare the effects of market volatilities on Cars and New Residential 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 New Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and New Residential.
Diversification Opportunities for Cars and New Residential
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Cars and New is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and New Residential Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Residential Inve 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 New Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Residential Inve has no effect on the direction of Cars i.e., Cars and New Residential go up and down completely randomly.
Pair Corralation between Cars and New Residential
Assuming the 90 days horizon Cars is expected to generate 1.75 times less return on investment than New Residential. In addition to that, Cars is 2.01 times more volatile than New Residential Investment. It trades about 0.02 of its total potential returns per unit of risk. New Residential Investment is currently generating about 0.07 per unit of volatility. If you would invest 874.00 in New Residential Investment on September 4, 2024 and sell it today you would earn a total of 183.00 from holding New Residential Investment or generate 20.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cars Inc vs. New Residential Investment
Performance |
| Timeline |
| Cars Inc |
| New Residential Inve |
Cars and New Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cars and New Residential
The main advantage of trading using opposite Cars and New Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars position performs unexpectedly, New Residential 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 New Residential will offset losses from the drop in New Residential's long position.| Cars vs. Penske Automotive Group | Cars vs. Asbury Automotive Group | Cars vs. Superior Plus Corp | Cars vs. NMI Holdings |
| New Residential vs. Tower One Wireless | New Residential vs. Cars Inc | New Residential vs. CITY OFFICE REIT | New Residential vs. KENEDIX OFFICE INV |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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