Correlation Between Carsales and PennantPark Investment

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Can any of the company-specific risk be diversified away by investing in both Carsales and PennantPark Investment 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 Carsales and PennantPark Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarsalesCom and PennantPark Investment, you can compare the effects of market volatilities on Carsales and PennantPark Investment 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 Carsales with a short position of PennantPark Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and PennantPark Investment.

Diversification Opportunities for Carsales and PennantPark Investment

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between Carsales and PennantPark is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and PennantPark Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark Investment and Carsales 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 CarsalesCom are associated (or correlated) with PennantPark Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Investment has no effect on the direction of Carsales i.e., Carsales and PennantPark Investment go up and down completely randomly.

Pair Corralation between Carsales and PennantPark Investment

Assuming the 90 days horizon CarsalesCom is expected to under-perform the PennantPark Investment. But the stock apears to be less risky and, when comparing its historical volatility, CarsalesCom is 1.46 times less risky than PennantPark Investment. The stock trades about -0.07 of its potential returns per unit of risk. The PennantPark Investment is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  645.00  in PennantPark Investment on October 12, 2024 and sell it today you would earn a total of  56.00  from holding PennantPark Investment or generate 8.68% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

CarsalesCom  vs.  PennantPark Investment

 Performance 
       Timeline  
CarsalesCom 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Carsales is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
PennantPark Investment 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, PennantPark Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Carsales and PennantPark Investment Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Carsales and PennantPark Investment

The main advantage of trading using opposite Carsales and PennantPark Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales position performs unexpectedly, PennantPark Investment 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 PennantPark Investment will offset losses from the drop in PennantPark Investment's long position.
The idea behind CarsalesCom and PennantPark Investment 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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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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