Correlation Between Carefree and A1
Can any of the company-specific risk be diversified away by investing in both Carefree and A1 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 Carefree and A1 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Carefree Group and A1 Group, you can compare the effects of market volatilities on Carefree and A1 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 Carefree with a short position of A1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carefree and A1.
Diversification Opportunities for Carefree and A1
Pay attention - limited upside
The 3 months correlation between Carefree and A1 is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Carefree Group and A1 Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on A1 Group and Carefree 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 Carefree Group are associated (or correlated) with A1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of A1 Group has no effect on the direction of Carefree i.e., Carefree and A1 go up and down completely randomly.
Pair Corralation between Carefree and A1
Given the investment horizon of 90 days Carefree Group is expected to generate 1.48 times more return on investment than A1. However, Carefree is 1.48 times more volatile than A1 Group. It trades about 0.07 of its potential returns per unit of risk. A1 Group is currently generating about 0.06 per unit of risk. If you would invest 3.00 in Carefree Group on September 3, 2024 and sell it today you would lose (1.50) from holding Carefree Group or give up 50.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Carefree Group vs. A1 Group
Performance |
| Timeline |
| Carefree Group |
| A1 Group |
Carefree and A1 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Carefree and A1
The main advantage of trading using opposite Carefree and A1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carefree position performs unexpectedly, A1 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 A1 will offset losses from the drop in A1's long position.The idea behind Carefree Group and A1 Group 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.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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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