Correlation Between FIRST NATIONAL and CARSALESCOM

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

By analyzing existing cross correlation between FIRST NATIONAL FIN and CARSALESCOM, you can compare the effects of market volatilities on FIRST NATIONAL and CARSALESCOM 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 FIRST NATIONAL with a short position of CARSALESCOM. Check out your portfolio center. Please also check ongoing floating volatility patterns of FIRST NATIONAL and CARSALESCOM.

Diversification Opportunities for FIRST NATIONAL and CARSALESCOM

0.83

Correlation Coefficient

FIRST NATIONAL  CARSALESCOM

Very poor diversification

The 3 months correlation between FIRST and CARSALESCOM is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding FIRST NATIONAL FIN and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM and FIRST NATIONAL 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 FIRST NATIONAL FIN are associated (or correlated) with CARSALESCOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CARSALESCOM has no effect on the direction of FIRST NATIONAL i.e., FIRST NATIONAL and CARSALESCOM go up and down completely randomly.

Pair Corralation between FIRST NATIONAL and CARSALESCOM

Assuming the 90 days horizon FIRST NATIONAL FIN is expected to under-perform the CARSALESCOM. But the stock apears to be less risky and, when comparing its historical volatility, FIRST NATIONAL FIN is 1.02 times less risky than CARSALESCOM. The stock trades about -0.1 of its potential returns per unit of risk. The CARSALESCOM is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  2,540  in CARSALESCOM on October 26, 2024 and sell it today you would lose (180.00) from holding CARSALESCOM or give up 7.09% of portfolio value over 90 days.

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

FIRST NATIONAL FIN  vs.  CARSALESCOM

FIRST NATIONAL FIN

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FIRST NATIONAL FIN are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, FIRST NATIONAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CARSALESCOM

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, CARSALESCOM is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FIRST NATIONAL and CARSALESCOM

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

The idea behind FIRST NATIONAL FIN and CARSALESCOM 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.