Correlation Between Auto Trader and Wise Plc

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

Diversification Opportunities for Auto Trader and Wise Plc

-0.77

Correlation Coefficient

Auto Trader  Wise Plc

Pay attention - limited upside

The 3 months correlation between Auto and Wise is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Wise plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wise 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 Wise Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wise plc has no effect on the direction of Auto Trader i.e., Auto Trader and Wise Plc go up and down completely randomly.

Pair Corralation between Auto Trader and Wise Plc

Assuming the 90 days trading horizon Auto Trader Group is expected to generate 0.54 times more return on investment than Wise Plc. However, Auto Trader Group is 1.86 times less risky than Wise Plc. It trades about 0.1 of its potential returns per unit of risk. Wise plc is currently generating about -0.05 per unit of risk. If you would invest  78,074  in Auto Trader Group on October 22, 2024 and sell it today you would earn a total of  1,286  from holding Auto Trader Group or generate 1.65% return on investment over 90 days.

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

Auto Trader Group  vs.  Wise 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 uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Wise plc

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wise plc are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Wise Plc unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Auto Trader and Wise Plc

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

The idea behind Auto Trader Group and Wise 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.