Correlation Between Cars and BRP

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

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

Diversification Opportunities for Cars and BRP

-0.55

Correlation Coefficient

Cars  BRP

Excellent diversification

The 3 months correlation between Cars and BRP is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and BRP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRP Inc and Cars 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 Cars Inc are associated (or correlated) with BRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRP Inc has no effect on the direction of Cars i.e., Cars and BRP go up and down completely randomly.

Pair Corralation between Cars and BRP

Given the investment horizon of 90 days Cars Inc is expected to generate 0.94 times more return on investment than BRP. However, Cars Inc is 1.07 times less risky than BRP. It trades about -0.03 of its potential returns per unit of risk. BRP Inc is currently generating about -0.06 per unit of risk. If you would invest  1,975  in Cars Inc on September 25, 2024 and sell it today you would lose (241.00) from holding Cars Inc or give up 12.2% of portfolio value over 90 days.

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

Cars Inc  vs.  BRP Inc

Cars Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cars is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

BRP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Cars and BRP

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

The idea behind Cars Inc and BRP Inc 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.