Correlation Between Carsales and ASX
Can any of the company-specific risk be diversified away by investing in both Carsales and ASX 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 ASX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarsalesCom and ASX Limited, you can compare the effects of market volatilities on Carsales and ASX 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 ASX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and ASX.
Diversification Opportunities for Carsales and ASX
Very weak diversification
The 3 months correlation between Carsales and ASX is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and ASX Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASX Limited 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 ASX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASX Limited has no effect on the direction of Carsales i.e., Carsales and ASX go up and down completely randomly.
Pair Corralation between Carsales and ASX
Assuming the 90 days horizon CarsalesCom is expected to generate 1.13 times more return on investment than ASX. However, Carsales is 1.13 times more volatile than ASX Limited. It trades about 0.08 of its potential returns per unit of risk. ASX Limited is currently generating about 0.01 per unit of risk. If you would invest 1,347 in CarsalesCom on November 5, 2024 and sell it today you would earn a total of 1,073 from holding CarsalesCom or generate 79.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CarsalesCom vs. ASX Limited
Performance |
| Timeline |
| CarsalesCom |
| ASX Limited |
Carsales and ASX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Carsales and ASX
The main advantage of trading using opposite Carsales and ASX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales position performs unexpectedly, ASX 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 ASX will offset losses from the drop in ASX's long position.| Carsales vs. UMC Electronics Co | Carsales vs. Cars Inc | Carsales vs. AOI Electronics Co | Carsales vs. Nanjing Panda Electronics |
| ASX vs. National Beverage Corp | ASX vs. BOSTON BEER A | ASX vs. Suntory Beverage Food | ASX vs. The Boston Beer |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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