Correlation Between Auto Trader and Rightmove Plc

Can any of the company-specific risk be diversified away by investing in both Auto Trader and Rightmove Plc 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 Rightmove Plc 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 Rightmove Plc, you can compare the effects of market volatilities on Auto Trader and Rightmove Plc 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 Rightmove Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Rightmove Plc.

Diversification Opportunities for Auto Trader and Rightmove Plc

0.7

Correlation Coefficient

Auto Trader  Rightmove Plc

Poor diversification

The 3 months correlation between Auto and Rightmove is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Rightmove Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rightmove Plc 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 Rightmove Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rightmove Plc has no effect on the direction of Auto Trader i.e., Auto Trader and Rightmove Plc go up and down completely randomly.

Pair Corralation between Auto Trader and Rightmove Plc

Assuming the 90 days horizon Auto Trader Group is expected to generate 0.81 times more return on investment than Rightmove Plc. However, Auto Trader Group is 1.23 times less risky than Rightmove Plc. It trades about 0.08 of its potential returns per unit of risk. Rightmove Plc is currently generating about 0.05 per unit of risk. If you would invest  152.00  in Auto Trader Group on September 14, 2024 and sell it today you would earn a total of  107.00  from holding Auto Trader Group or generate 70.39% return on investment over 90 days.

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

Auto Trader Group  vs.  Rightmove Plc

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 fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Rightmove Plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Auto Trader and Rightmove Plc

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

The idea behind Auto Trader Group and Rightmove Plc 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..