Correlation Between Lear and Commercial Vehicle
Can any of the company-specific risk be diversified away by investing in both Lear and Commercial Vehicle 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 Lear and Commercial Vehicle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Lear Corporation and Commercial Vehicle Group, you can compare the effects of market volatilities on Lear and Commercial Vehicle 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 Lear with a short position of Commercial Vehicle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lear and Commercial Vehicle.
Diversification Opportunities for Lear and Commercial Vehicle
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Lear and Commercial is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Lear Corp. and Commercial Vehicle Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Vehicle and Lear 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 Lear Corporation are associated (or correlated) with Commercial Vehicle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Vehicle has no effect on the direction of Lear i.e., Lear and Commercial Vehicle go up and down completely randomly.
Pair Corralation between Lear and Commercial Vehicle
Considering the 90-day investment horizon Lear Corporation is expected to generate 0.51 times more return on investment than Commercial Vehicle. However, Lear Corporation is 1.94 times less risky than Commercial Vehicle. It trades about -0.02 of its potential returns per unit of risk. Commercial Vehicle Group is currently generating about -0.09 per unit of risk. If you would invest 11,934 in Lear Corporation on August 27, 2024 and sell it today you would lose (2,145) from holding Lear Corporation or give up 17.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Lear Corp. vs. Commercial Vehicle Group
Performance |
| Timeline |
| Lear |
| Commercial Vehicle |
Lear and Commercial Vehicle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Lear and Commercial Vehicle
The main advantage of trading using opposite Lear and Commercial Vehicle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lear position performs unexpectedly, Commercial Vehicle 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 Commercial Vehicle will offset losses from the drop in Commercial Vehicle's long position.The idea behind Lear Corporation and Commercial Vehicle 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.| Commercial Vehicle vs. Motorcar Parts of | Commercial Vehicle vs. Monro Muffler Brake | Commercial Vehicle vs. Stoneridge | Commercial Vehicle vs. Superior Industries International |
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 Stocks Directory module to find actively traded stocks across global markets.
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