Correlation Between Traton SE and Cars

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

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

Diversification Opportunities for Traton SE and Cars

-0.07

Correlation Coefficient

Traton SE  Cars

Good diversification

The 3 months correlation between Traton and Cars is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Traton SE and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and Traton SE 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 Traton SE are associated (or correlated) with Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of Traton SE i.e., Traton SE and Cars go up and down completely randomly.

Pair Corralation between Traton SE and Cars

Assuming the 90 days trading horizon Traton SE is expected to generate 7.04 times less return on investment than Cars. But when comparing it to its historical volatility, Traton SE is 1.11 times less risky than Cars. It trades about 0.02 of its potential returns per unit of risk. Cars Inc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,410  in Cars Inc on October 11, 2024 and sell it today you would earn a total of  210.00  from holding Cars Inc or generate 14.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Traton SE  vs.  Cars Inc

Traton SE

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Traton SE are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Traton SE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cars Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cars reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Traton SE and Cars

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

The idea behind Traton SE and Cars Inc 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.