Correlation Between Cars and Fevertree Drinks
Can any of the company-specific risk be diversified away by investing in both Cars and Fevertree Drinks 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 Fevertree Drinks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and Fevertree Drinks PLC, you can compare the effects of market volatilities on Cars and Fevertree Drinks 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 Fevertree Drinks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and Fevertree Drinks.
Diversification Opportunities for Cars and Fevertree Drinks
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Cars and Fevertree is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Fevertree Drinks PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks PLC 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 Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks PLC has no effect on the direction of Cars i.e., Cars and Fevertree Drinks go up and down completely randomly.
Pair Corralation between Cars and Fevertree Drinks
Assuming the 90 days horizon Cars Inc is expected to generate 1.19 times more return on investment than Fevertree Drinks. However, Cars is 1.19 times more volatile than Fevertree Drinks PLC. It trades about 0.03 of its potential returns per unit of risk. Fevertree Drinks PLC is currently generating about -0.02 per unit of risk. If you would invest 1,270 in Cars Inc on September 23, 2024 and sell it today you would earn a total of 390.00 from holding Cars Inc or generate 30.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cars Inc vs. Fevertree Drinks PLC
Performance |
| Timeline |
| Cars Inc |
| Fevertree Drinks PLC |
Cars and Fevertree Drinks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cars and Fevertree Drinks
The main advantage of trading using opposite Cars and Fevertree Drinks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars position performs unexpectedly, Fevertree Drinks 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 Fevertree Drinks will offset losses from the drop in Fevertree Drinks' long position.The idea behind Cars Inc and Fevertree Drinks PLC 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.| Fevertree Drinks vs. HANOVER INSURANCE | Fevertree Drinks vs. INSURANCE AUST GRP | Fevertree Drinks vs. Selective Insurance Group | Fevertree Drinks vs. SHIN ETSU CHEMICAL |
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 Stocks Directory module to find actively traded stocks across global markets.
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