Correlation Between Auto Trader and VeriSign

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

Diversification Opportunities for Auto Trader and VeriSign

0.14

Correlation Coefficient

Auto Trader  VeriSign

Average diversification

The 3 months correlation between Auto and VeriSign is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and VeriSign in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VeriSign 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 VeriSign. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VeriSign has no effect on the direction of Auto Trader i.e., Auto Trader and VeriSign go up and down completely randomly.

Pair Corralation between Auto Trader and VeriSign

Assuming the 90 days trading horizon Auto Trader Group is expected to under-perform the VeriSign. In addition to that, Auto Trader is 1.07 times more volatile than VeriSign. It trades about -0.05 of its total potential returns per unit of risk. VeriSign is currently generating about 0.01 per unit of volatility. If you would invest  18,653  in VeriSign on September 2, 2024 and sell it today you would earn a total of  65.00  from holding VeriSign or generate 0.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.97%
Values	Daily Returns

Auto Trader Group  vs.  VeriSign

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 comparatively stable basic indicators, Auto Trader is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

VeriSign

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VeriSign has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, VeriSign is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Auto Trader and VeriSign

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

The idea behind Auto Trader Group and VeriSign 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.