Correlation Between Carsales and Fortescue Metals
Can any of the company-specific risk be diversified away by investing in both Carsales and Fortescue Metals 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 Fortescue Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Carsales and Fortescue Metals Group, you can compare the effects of market volatilities on Carsales and Fortescue Metals 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 Fortescue Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Fortescue Metals.
Diversification Opportunities for Carsales and Fortescue Metals
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Carsales and Fortescue is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and Fortescue Metals Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortescue Metals 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 Fortescue Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortescue Metals has no effect on the direction of Carsales i.e., Carsales and Fortescue Metals go up and down completely randomly.
Pair Corralation between Carsales and Fortescue Metals
Assuming the 90 days trading horizon Carsales is expected to generate 1.65 times less return on investment than Fortescue Metals. In addition to that, Carsales is 1.35 times more volatile than Fortescue Metals Group. It trades about 0.11 of its total potential returns per unit of risk. Fortescue Metals Group is currently generating about 0.25 per unit of volatility. If you would invest 1,052 in Fortescue Metals Group on November 8, 2024 and sell it today you would earn a total of 99.00 from holding Fortescue Metals Group or generate 9.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Carsales vs. Fortescue Metals Group
Performance |
| Timeline |
| Carsales |
| Fortescue Metals |
Carsales and Fortescue Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Carsales and Fortescue Metals
The main advantage of trading using opposite Carsales and Fortescue Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales position performs unexpectedly, Fortescue Metals 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 Fortescue Metals will offset losses from the drop in Fortescue Metals' long position.| Carsales vs. INSURANCE AUST GRP | Carsales vs. Gaztransport Technigaz SA | Carsales vs. HANOVER INSURANCE | Carsales vs. USWE SPORTS AB |
| Fortescue Metals vs. MINCO SILVER | Fortescue Metals vs. Zijin Mining Group | Fortescue Metals vs. GRIFFIN MINING LTD | Fortescue Metals vs. Eurasia Mining Plc |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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