Correlation Between Gamma Communications and CARSALESCOM

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

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

Diversification Opportunities for Gamma Communications and CARSALESCOM

-0.34

Correlation Coefficient

Gamma Communications  CARSALESCOM

Very good diversification

The 3 months correlation between Gamma and CARSALESCOM is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Gamma Communications plc and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM and Gamma Communications 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 Gamma Communications plc 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 Gamma Communications i.e., Gamma Communications and CARSALESCOM go up and down completely randomly.

Pair Corralation between Gamma Communications and CARSALESCOM

Assuming the 90 days horizon Gamma Communications plc is expected to generate 1.17 times more return on investment than CARSALESCOM. However, Gamma Communications is 1.17 times more volatile than CARSALESCOM. It trades about 0.02 of its potential returns per unit of risk. CARSALESCOM is currently generating about -0.39 per unit of risk. If you would invest  1,860  in Gamma Communications plc on September 23, 2024 and sell it today you would earn a total of  10.00  from holding Gamma Communications plc or generate 0.54% return on investment over 90 days.

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

Gamma Communications plc  vs.  CARSALESCOM

Gamma Communications plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gamma Communications plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Gamma Communications 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

0 of 100

Very Weak

Over the last 90 days CARSALESCOM has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Gamma Communications and CARSALESCOM

The main advantage of trading using opposite Gamma Communications and CARSALESCOM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gamma Communications 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 Gamma Communications plc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.