Correlation Between Carsales and Waste Management
Can any of the company-specific risk be diversified away by investing in both Carsales and Waste Management 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 Waste Management into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CarsalesCom and Waste Management, you can compare the effects of market volatilities on Carsales and Waste Management 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 Waste Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Waste Management.
Diversification Opportunities for Carsales and Waste Management
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Carsales and Waste is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of Carsales i.e., Carsales and Waste Management go up and down completely randomly.
Pair Corralation between Carsales and Waste Management
Assuming the 90 days horizon CarsalesCom is expected to generate 0.81 times more return on investment than Waste Management. However, CarsalesCom is 1.23 times less risky than Waste Management. It trades about 0.42 of its potential returns per unit of risk. Waste Management is currently generating about 0.29 per unit of risk. If you would invest 2,220 in CarsalesCom on August 25, 2024 and sell it today you would earn a total of 280.00 from holding CarsalesCom or generate 12.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
CarsalesCom vs. Waste Management
Performance |
| Timeline |
| CarsalesCom |
| Waste Management |
Carsales and Waste Management Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Carsales and Waste Management
The main advantage of trading using opposite Carsales and Waste Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales position performs unexpectedly, Waste Management 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 Waste Management will offset losses from the drop in Waste Management's long position.The idea behind CarsalesCom and Waste Management 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.| Waste Management vs. Apple Inc | Waste Management vs. Apple Inc | Waste Management vs. Apple Inc | Waste Management vs. Apple Inc |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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