Correlation Between Auto Trader and GSTechnologies

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

Diversification Opportunities for Auto Trader and GSTechnologies

0.4

Correlation Coefficient

Auto Trader  GSTechnologies

Very weak diversification

The 3 months correlation between Auto and GSTechnologies is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and GSTechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSTechnologies 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 GSTechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSTechnologies has no effect on the direction of Auto Trader i.e., Auto Trader and GSTechnologies go up and down completely randomly.

Pair Corralation between Auto Trader and GSTechnologies

Assuming the 90 days trading horizon Auto Trader Group is expected to generate 0.15 times more return on investment than GSTechnologies. However, Auto Trader Group is 6.74 times less risky than GSTechnologies. It trades about -0.07 of its potential returns per unit of risk. GSTechnologies is currently generating about -0.07 per unit of risk. If you would invest  78,492  in Auto Trader Group on December 30, 2024 and sell it today you would lose (4,092) from holding Auto Trader Group or give up 5.21% of portfolio value over 90 days.

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

Auto Trader Group  vs.  GSTechnologies

Auto Trader Group

Risk-Adjusted Performance

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

GSTechnologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days GSTechnologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Auto Trader and GSTechnologies

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

The idea behind Auto Trader Group and GSTechnologies 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .