Correlation Between PACCAR and CEA Industries
Can any of the company-specific risk be diversified away by investing in both PACCAR and CEA Industries 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 PACCAR and CEA Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PACCAR Inc and CEA Industries, you can compare the effects of market volatilities on PACCAR and CEA Industries 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 PACCAR with a short position of CEA Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of PACCAR and CEA Industries.
Diversification Opportunities for PACCAR and CEA Industries
-0.39 | Correlation Coefficient |
Very good diversification
The 3 months correlation between PACCAR and CEA is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and CEA Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEA Industries and PACCAR 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 PACCAR Inc are associated (or correlated) with CEA Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEA Industries has no effect on the direction of PACCAR i.e., PACCAR and CEA Industries go up and down completely randomly.
Pair Corralation between PACCAR and CEA Industries
Given the investment horizon of 90 days PACCAR Inc is expected to generate 0.72 times more return on investment than CEA Industries. However, PACCAR Inc is 1.39 times less risky than CEA Industries. It trades about 0.2 of its potential returns per unit of risk. CEA Industries is currently generating about -0.08 per unit of risk. If you would invest 9,429 in PACCAR Inc on August 28, 2024 and sell it today you would earn a total of 2,225 from holding PACCAR Inc or generate 23.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PACCAR Inc vs. CEA Industries
Performance |
| Timeline |
| PACCAR Inc |
| CEA Industries |
PACCAR and CEA Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PACCAR and CEA Industries
The main advantage of trading using opposite PACCAR and CEA Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACCAR position performs unexpectedly, CEA Industries 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 CEA Industries will offset losses from the drop in CEA Industries' long position.The idea behind PACCAR Inc and CEA Industries 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.| CEA Industries vs. Rev Group | CEA Industries vs. Caterpillar | CEA Industries vs. Buhler Industries | CEA Industries vs. Austin Engineering Limited |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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