Correlation Between Cars and TOMBADOR IRON

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

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

Diversification Opportunities for Cars and TOMBADOR IRON

0.0

Correlation Coefficient

Cars  TOMBADOR IRON

Pay attention - limited upside

The 3 months correlation between Cars and TOMBADOR is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and TOMBADOR IRON LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOMBADOR IRON LTD 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 TOMBADOR IRON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOMBADOR IRON LTD has no effect on the direction of Cars i.e., Cars and TOMBADOR IRON go up and down completely randomly.

Pair Corralation between Cars and TOMBADOR IRON

Assuming the 90 days horizon Cars is expected to generate 30.08 times less return on investment than TOMBADOR IRON. But when comparing it to its historical volatility, Cars Inc is 16.11 times less risky than TOMBADOR IRON. It trades about 0.02 of its potential returns per unit of risk. TOMBADOR IRON LTD is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  0.90  in TOMBADOR IRON LTD on October 11, 2024 and sell it today you would earn a total of  9.10  from holding TOMBADOR IRON LTD or generate 1011.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Cars Inc  vs.  TOMBADOR IRON LTD

Cars Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cars reported solid returns over the last few months and may actually be approaching a breakup point.

TOMBADOR IRON LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOMBADOR IRON LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TOMBADOR IRON is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cars and TOMBADOR IRON

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

The idea behind Cars Inc and TOMBADOR IRON LTD 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.