Correlation Between Automotive Portfolio and Consumer Finance
Can any of the company-specific risk be diversified away by investing in both Automotive Portfolio and Consumer Finance 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 Automotive Portfolio and Consumer Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Automotive Portfolio Automotive and Consumer Finance Portfolio, you can compare the effects of market volatilities on Automotive Portfolio and Consumer Finance 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 Automotive Portfolio with a short position of Consumer Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automotive Portfolio and Consumer Finance.
Diversification Opportunities for Automotive Portfolio and Consumer Finance
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between AUTOMOTIVE and Consumer is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Automotive Portfolio Automotiv and Consumer Finance Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Finance Por and Automotive Portfolio 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 Automotive Portfolio Automotive are associated (or correlated) with Consumer Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Finance Por has no effect on the direction of Automotive Portfolio i.e., Automotive Portfolio and Consumer Finance go up and down completely randomly.
Pair Corralation between Automotive Portfolio and Consumer Finance
Assuming the 90 days horizon Automotive Portfolio is expected to generate 1.83 times less return on investment than Consumer Finance. But when comparing it to its historical volatility, Automotive Portfolio Automotive is 1.05 times less risky than Consumer Finance. It trades about 0.08 of its potential returns per unit of risk. Consumer Finance Portfolio is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 1,819 in Consumer Finance Portfolio on October 26, 2024 and sell it today you would earn a total of 200.00 from holding Consumer Finance Portfolio or generate 11.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Automotive Portfolio Automotiv vs. Consumer Finance Portfolio
Performance |
| Timeline |
| Automotive Portfolio |
| Consumer Finance Por |
Automotive Portfolio and Consumer Finance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Automotive Portfolio and Consumer Finance
The main advantage of trading using opposite Automotive Portfolio and Consumer Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automotive Portfolio position performs unexpectedly, Consumer Finance 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 Consumer Finance will offset losses from the drop in Consumer Finance's long position.The idea behind Automotive Portfolio Automotive and Consumer Finance Portfolio 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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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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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