Correlation Between Cars and Olympus
Can any of the company-specific risk be diversified away by investing in both Cars and Olympus 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 Olympus into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cars Inc and Olympus, you can compare the effects of market volatilities on Cars and Olympus 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 Olympus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cars and Olympus.
Diversification Opportunities for Cars and Olympus
Very poor diversification
The 3 months correlation between Cars and Olympus is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Olympus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympus 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 Olympus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olympus has no effect on the direction of Cars i.e., Cars and Olympus go up and down completely randomly.
Pair Corralation between Cars and Olympus
Assuming the 90 days horizon Cars Inc is expected to generate 1.41 times more return on investment than Olympus. However, Cars is 1.41 times more volatile than Olympus. It trades about -0.02 of its potential returns per unit of risk. Olympus is currently generating about -0.04 per unit of risk. If you would invest 1,760 in Cars Inc on January 10, 2025 and sell it today you would lose (780.00) from holding Cars Inc or give up 44.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cars Inc vs. Olympus
Performance |
| Timeline |
| Cars Inc |
| Olympus |
Cars and Olympus Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cars and Olympus
The main advantage of trading using opposite Cars and Olympus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cars position performs unexpectedly, Olympus 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 Olympus will offset losses from the drop in Olympus' long position.| Cars vs. Yunnan Water Investment | Cars vs. ORMAT TECHNOLOGIES | Cars vs. Japan Asia Investment | Cars vs. ZEDER INVESTMENTS |
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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