Correlation Between Cars and Dillards

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

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

Diversification Opportunities for Cars and Dillards

0.8

Correlation Coefficient

Cars  Dillards

Very poor diversification

The 3 months correlation between Cars and Dillards is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Dillards in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dillards 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 Dillards. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dillards has no effect on the direction of Cars i.e., Cars and Dillards go up and down completely randomly.

Pair Corralation between Cars and Dillards

Assuming the 90 days horizon Cars Inc is expected to under-perform the Dillards. But the stock apears to be less risky and, when comparing its historical volatility, Cars Inc is 1.79 times less risky than Dillards. The stock trades about -0.28 of its potential returns per unit of risk. The Dillards is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  39,346  in Dillards on October 9, 2024 and sell it today you would earn a total of  3,054  from holding Dillards or generate 7.76% return on investment over 90 days.

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

Cars Inc  vs.  Dillards

Cars Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Cars reported solid returns over the last few months and may actually be approaching a breakup point.

Dillards

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dillards are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Dillards reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cars and Dillards

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

The idea behind Cars Inc and Dillards 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.