Correlation Between Analog Devices and CarsalesCom

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

By analyzing existing cross correlation between Analog Devices and CarsalesCom Ltd ADR, you can compare the effects of market volatilities on Analog Devices 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 Analog Devices with a short position of CarsalesCom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Analog Devices and CarsalesCom.

Diversification Opportunities for Analog Devices and CarsalesCom

-0.1

Correlation Coefficient

Analog Devices  CarsalesCom

Good diversification

The 3 months correlation between Analog and CarsalesCom is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and CarsalesCom Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom ADR and Analog Devices 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 Analog Devices 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 ADR has no effect on the direction of Analog Devices i.e., Analog Devices and CarsalesCom go up and down completely randomly.

Pair Corralation between Analog Devices and CarsalesCom

Considering the 90-day investment horizon Analog Devices is expected to generate 0.36 times more return on investment than CarsalesCom. However, Analog Devices is 2.75 times less risky than CarsalesCom. It trades about 0.09 of its potential returns per unit of risk. CarsalesCom Ltd ADR is currently generating about -0.22 per unit of risk. If you would invest  21,561  in Analog Devices on October 11, 2024 and sell it today you would earn a total of  483.00  from holding Analog Devices or generate 2.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Analog Devices  vs.  CarsalesCom Ltd ADR

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

CarsalesCom ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CarsalesCom Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, CarsalesCom is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Analog Devices and CarsalesCom

The main advantage of trading using opposite Analog Devices and CarsalesCom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Analog Devices 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 Analog Devices and CarsalesCom Ltd ADR 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.