Correlation Between Cars and Signature Bank

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

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

Diversification Opportunities for Cars and Signature Bank

-0.64

Correlation Coefficient

Cars  Signature Bank

Excellent diversification

The 3 months correlation between Cars and Signature is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Signature Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Signature Bank 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 Signature Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Signature Bank has no effect on the direction of Cars i.e., Cars and Signature Bank go up and down completely randomly.

Pair Corralation between Cars and Signature Bank

Given the investment horizon of 90 days Cars is expected to generate 36.68 times less return on investment than Signature Bank. But when comparing it to its historical volatility, Cars Inc is 12.16 times less risky than Signature Bank. It trades about 0.03 of its potential returns per unit of risk. Signature Bank is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,669  in Signature Bank on September 28, 2024 and sell it today you would lose (1,667) from holding Signature Bank or give up 99.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	30.92%
Values	Daily Returns

Cars Inc  vs.  Signature Bank

Cars Inc

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 2 (%) 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.

Signature Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Signature Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Signature Bank is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Cars and Signature Bank

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

The idea behind Cars Inc and Signature Bank 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.

Check out your portfolio center.

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 Valuation module to check real value of public entities based on technical and fundamental data.