Correlation Between Western Acquisition and Cars
Can any of the company-specific risk be diversified away by investing in both Western Acquisition 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 Western Acquisition and Cars into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Acquisition Ventures and Cars Inc, you can compare the effects of market volatilities on Western Acquisition 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 Western Acquisition with a short position of Cars. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Acquisition and Cars.
Diversification Opportunities for Western Acquisition and Cars
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Western and Cars is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Western Acquisition Ventures and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and Western Acquisition 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 Western Acquisition Ventures 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 Western Acquisition i.e., Western Acquisition and Cars go up and down completely randomly.
Pair Corralation between Western Acquisition and Cars
Given the investment horizon of 90 days Western Acquisition is expected to generate 2.56 times less return on investment than Cars. But when comparing it to its historical volatility, Western Acquisition Ventures is 1.48 times less risky than Cars. It trades about 0.01 of its potential returns per unit of risk. Cars Inc is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 1,935 in Cars Inc on September 4, 2024 and sell it today you would earn a total of 59.00 from holding Cars Inc or generate 3.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Acquisition Ventures vs. Cars Inc
Performance |
| Timeline |
| Western Acquisition |
| Cars Inc |
Western Acquisition and Cars Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Acquisition and Cars
The main advantage of trading using opposite Western Acquisition and Cars positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Acquisition 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 Western Acquisition Ventures 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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