Correlation Between Carsales and Auto Trader
Can any of the company-specific risk be diversified away by investing in both Carsales and Auto Trader 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 Auto Trader into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Carsales and Auto Trader Group, you can compare the effects of market volatilities on Carsales and Auto Trader 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 Auto Trader. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Auto Trader.
Diversification Opportunities for Carsales and Auto Trader
-0.63 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Carsales and Auto is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and Auto Trader Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auto Trader Group 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 Carsales are associated (or correlated) with Auto Trader. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auto Trader Group has no effect on the direction of Carsales i.e., Carsales and Auto Trader go up and down completely randomly.
Pair Corralation between Carsales and Auto Trader
Assuming the 90 days trading horizon Carsales is expected to generate 1.01 times more return on investment than Auto Trader. However, Carsales is 1.01 times more volatile than Auto Trader Group. It trades about 0.11 of its potential returns per unit of risk. Auto Trader Group is currently generating about 0.07 per unit of risk. If you would invest 1,386 in Carsales on September 2, 2024 and sell it today you would earn a total of 1,154 from holding Carsales or generate 83.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Carsales vs. Auto Trader Group
Performance |
| Timeline |
| Carsales |
| Auto Trader Group |
Carsales and Auto Trader Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Carsales and Auto Trader
The main advantage of trading using opposite Carsales and Auto Trader positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales position performs unexpectedly, Auto Trader 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 Auto Trader will offset losses from the drop in Auto Trader's long position.The idea behind Carsales and Auto Trader Group 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.| Auto Trader vs. Apple Inc | Auto Trader vs. Apple Inc | Auto Trader vs. Apple Inc | Auto Trader 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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