Correlation Between Gold Road and Cars

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

Diversification Opportunities for Gold Road and Cars

0.4
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Gold and Cars is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Gold Road Resources and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and Gold Road 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 Gold Road Resources are associated (or correlated) with Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of Gold Road i.e., Gold Road and Cars go up and down completely randomly.

Pair Corralation between Gold Road and Cars

Assuming the 90 days horizon Gold Road is expected to generate 1.22 times less return on investment than Cars. In addition to that, Gold Road is 1.01 times more volatile than Cars Inc. It trades about 0.03 of its total potential returns per unit of risk. Cars Inc is currently generating about 0.03 per unit of volatility. 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 Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Gold Road Resources  vs.  Cars Inc

 Performance 
       Timeline  
Gold Road Resources 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Gold Road Resources are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gold Road reported solid returns over the last few months and may actually be approaching a breakup point.
Cars Inc 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Cars is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Gold Road and Cars Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Gold Road and Cars

The main advantage of trading using opposite Gold Road and Cars positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gold Road position performs unexpectedly, Cars 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 Cars will offset losses from the drop in Cars' long position.
The idea behind Gold Road Resources and Cars Inc 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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