Correlation Between Carsales and Fevertree Drinks
Can any of the company-specific risk be diversified away by investing in both Carsales and Fevertree Drinks 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 Fevertree Drinks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Carsales and Fevertree Drinks PLC, you can compare the effects of market volatilities on Carsales and Fevertree Drinks 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 Fevertree Drinks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Fevertree Drinks.
Diversification Opportunities for Carsales and Fevertree Drinks
-0.75 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Carsales and Fevertree is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and Fevertree Drinks PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks PLC 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 Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks PLC has no effect on the direction of Carsales i.e., Carsales and Fevertree Drinks go up and down completely randomly.
Pair Corralation between Carsales and Fevertree Drinks
Assuming the 90 days trading horizon Carsales is expected to generate 0.58 times more return on investment than Fevertree Drinks. However, Carsales is 1.74 times less risky than Fevertree Drinks. It trades about 0.49 of its potential returns per unit of risk. Fevertree Drinks PLC is currently generating about -0.15 per unit of risk. If you would invest 2,260 in Carsales on August 30, 2024 and sell it today you would earn a total of 340.00 from holding Carsales or generate 15.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Carsales vs. Fevertree Drinks PLC
Performance |
| Timeline |
| Carsales |
| Fevertree Drinks PLC |
Carsales and Fevertree Drinks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Carsales and Fevertree Drinks
The main advantage of trading using opposite Carsales and Fevertree Drinks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales position performs unexpectedly, Fevertree Drinks 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 Fevertree Drinks will offset losses from the drop in Fevertree Drinks' long position.| Carsales vs. MI Homes | Carsales vs. Aedas Homes SA | Carsales vs. Zoom Video Communications | Carsales vs. Infrastrutture Wireless Italiane |
| Fevertree Drinks vs. Apple Inc | Fevertree Drinks vs. Apple Inc | Fevertree Drinks vs. Apple Inc | Fevertree Drinks 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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