Correlation Between Carsales and SPARTAN STORES

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

Diversification Opportunities for Carsales and SPARTAN STORES

-0.58
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Carsales and SPARTAN is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and SPARTAN STORES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPARTAN STORES 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 SPARTAN STORES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPARTAN STORES has no effect on the direction of Carsales i.e., Carsales and SPARTAN STORES go up and down completely randomly.

Pair Corralation between Carsales and SPARTAN STORES

Assuming the 90 days horizon CarsalesCom is expected to generate 0.78 times more return on investment than SPARTAN STORES. However, CarsalesCom is 1.28 times less risky than SPARTAN STORES. It trades about -0.1 of its potential returns per unit of risk. SPARTAN STORES is currently generating about -0.1 per unit of risk. If you would invest  2,360  in CarsalesCom on October 11, 2024 and sell it today you would lose (60.00) from holding CarsalesCom or give up 2.54% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

CarsalesCom  vs.  SPARTAN STORES

 Performance 
       Timeline  
CarsalesCom 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 1 (%) 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.
SPARTAN STORES 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days SPARTAN STORES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward-looking indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Carsales and SPARTAN STORES Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Carsales and SPARTAN STORES

The main advantage of trading using opposite Carsales and SPARTAN STORES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales position performs unexpectedly, SPARTAN STORES 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 SPARTAN STORES will offset losses from the drop in SPARTAN STORES's long position.
The idea behind CarsalesCom and SPARTAN STORES 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.

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