Correlation Between Carsales and Lifeway Foods
Can any of the company-specific risk be diversified away by investing in both Carsales and Lifeway Foods 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 Lifeway Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Carsales and Lifeway Foods, you can compare the effects of market volatilities on Carsales and Lifeway Foods 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 Lifeway Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Lifeway Foods.
Diversification Opportunities for Carsales and Lifeway Foods
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Carsales and Lifeway is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and Lifeway Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifeway Foods 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 Lifeway Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifeway Foods has no effect on the direction of Carsales i.e., Carsales and Lifeway Foods go up and down completely randomly.
Pair Corralation between Carsales and Lifeway Foods
Assuming the 90 days trading horizon Carsales is expected to generate 0.26 times more return on investment than Lifeway Foods. However, Carsales is 3.87 times less risky than Lifeway Foods. It trades about 0.36 of its potential returns per unit of risk. Lifeway Foods is currently generating about -0.01 per unit of risk. If you would invest 2,280 in Carsales on September 1, 2024 and sell it today you would earn a total of 260.00 from holding Carsales or generate 11.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Carsales vs. Lifeway Foods
Performance |
| Timeline |
| Carsales |
| Lifeway Foods |
Carsales and Lifeway Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Carsales and Lifeway Foods
The main advantage of trading using opposite Carsales and Lifeway Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales position performs unexpectedly, Lifeway Foods 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 Lifeway Foods will offset losses from the drop in Lifeway Foods' long position.The idea behind Carsales and Lifeway Foods 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.| Lifeway Foods vs. ScanSource | Lifeway Foods vs. Waste Management | Lifeway Foods vs. Brockhaus Capital Management | Lifeway Foods vs. Consolidated Communications Holdings |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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