Correlation Between Canadian Utilities and Carsales

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Can any of the company-specific risk be diversified away by investing in both Canadian Utilities and Carsales 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 Canadian Utilities and Carsales into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Canadian Utilities Limited and CarsalesCom, you can compare the effects of market volatilities on Canadian Utilities and Carsales 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 Canadian Utilities with a short position of Carsales. Check out your portfolio center. Please also check ongoing floating volatility patterns of Canadian Utilities and Carsales.

Diversification Opportunities for Canadian Utilities and Carsales

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Canadian and Carsales is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Utilities Limited and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom and Canadian Utilities 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 Canadian Utilities Limited are associated (or correlated) with Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom has no effect on the direction of Canadian Utilities i.e., Canadian Utilities and Carsales go up and down completely randomly.

Pair Corralation between Canadian Utilities and Carsales

Assuming the 90 days horizon Canadian Utilities Limited is expected to under-perform the Carsales. But the stock apears to be less risky and, when comparing its historical volatility, Canadian Utilities Limited is 2.91 times less risky than Carsales. The stock trades about 0.0 of its potential returns per unit of risk. The CarsalesCom is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,260  in CarsalesCom on October 20, 2024 and sell it today you would earn a total of  0.00  from holding CarsalesCom or generate 0.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Canadian Utilities Limited  vs.  CarsalesCom

 Performance 
       Timeline  
Canadian Utilities 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Canadian Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
CarsalesCom 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days CarsalesCom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Carsales is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Canadian Utilities and Carsales Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Canadian Utilities and Carsales

The main advantage of trading using opposite Canadian Utilities and Carsales positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Canadian Utilities position performs unexpectedly, Carsales 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 Carsales will offset losses from the drop in Carsales' long position.
The idea behind Canadian Utilities Limited and CarsalesCom 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.
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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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