Correlation Between North American and Carsales
Can any of the company-specific risk be diversified away by investing in both North American 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 North American and Carsales into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Construction and CarsalesCom, you can compare the effects of market volatilities on North American 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 North American with a short position of Carsales. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Carsales.
Diversification Opportunities for North American and Carsales
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between North and Carsales is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom and North American 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 North American Construction 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 North American i.e., North American and Carsales go up and down completely randomly.
Pair Corralation between North American and Carsales
Assuming the 90 days horizon North American Construction is expected to generate 1.38 times more return on investment than Carsales. However, North American is 1.38 times more volatile than CarsalesCom. It trades about 0.0 of its potential returns per unit of risk. CarsalesCom is currently generating about -0.12 per unit of risk. If you would invest 1,780 in North American Construction on November 27, 2024 and sell it today you would lose (30.00) from holding North American Construction or give up 1.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Construction vs. CarsalesCom
Performance |
| Timeline |
| North American Const |
| CarsalesCom |
North American and Carsales Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and Carsales
The main advantage of trading using opposite North American and Carsales positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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.| North American vs. MINCO SILVER | North American vs. MAG Silver Corp | North American vs. TRADEGATE | North American vs. Endeavour Mining PLC |
| Carsales vs. AXWAY SOFTWARE EO | Carsales vs. Iridium Communications | Carsales vs. Unity Software | Carsales vs. Verizon Communications |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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