Correlation Between Auto Trader and Norwegian Air

Can any of the company-specific risk be diversified away by investing in both Auto Trader and Norwegian Air 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 Auto Trader and Norwegian Air into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Auto Trader Group and Norwegian Air Shuttle, you can compare the effects of market volatilities on Auto Trader and Norwegian Air 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 Auto Trader with a short position of Norwegian Air. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Norwegian Air.

Diversification Opportunities for Auto Trader and Norwegian Air

0.31

Correlation Coefficient

Auto Trader  Norwegian Air

Weak diversification

The 3 months correlation between Auto and Norwegian is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Norwegian Air Shuttle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Norwegian Air Shuttle and Auto Trader 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 Auto Trader Group are associated (or correlated) with Norwegian Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Norwegian Air Shuttle has no effect on the direction of Auto Trader i.e., Auto Trader and Norwegian Air go up and down completely randomly.

Pair Corralation between Auto Trader and Norwegian Air

Assuming the 90 days trading horizon Auto Trader Group is expected to generate 0.48 times more return on investment than Norwegian Air. However, Auto Trader Group is 2.09 times less risky than Norwegian Air. It trades about 0.06 of its potential returns per unit of risk. Norwegian Air Shuttle is currently generating about 0.01 per unit of risk. If you would invest  655.00  in Auto Trader Group on October 10, 2024 and sell it today you would earn a total of  285.00  from holding Auto Trader Group or generate 43.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Auto Trader Group  vs.  Norwegian Air Shuttle

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Norwegian Air Shuttle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Norwegian Air Shuttle has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Norwegian Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Auto Trader and Norwegian Air

The main advantage of trading using opposite Auto Trader and Norwegian Air positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auto Trader position performs unexpectedly, Norwegian Air 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 Norwegian Air will offset losses from the drop in Norwegian Air's long position.

The idea behind Auto Trader Group and Norwegian Air Shuttle 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.

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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.