Correlation Between Cars and SALESFORCE INC

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

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

Diversification Opportunities for Cars and SALESFORCE INC

0.74

Correlation Coefficient

Cars  SALESFORCE INC

Poor diversification

The 3 months correlation between Cars and SALESFORCE is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and SALESFORCE INC CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SALESFORCE INC CDR 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 SALESFORCE INC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SALESFORCE INC CDR has no effect on the direction of Cars i.e., Cars and SALESFORCE INC go up and down completely randomly.

Pair Corralation between Cars and SALESFORCE INC

Assuming the 90 days horizon Cars Inc is expected to under-perform the SALESFORCE INC. But the stock apears to be less risky and, when comparing its historical volatility, Cars Inc is 1.58 times less risky than SALESFORCE INC. The stock trades about -0.16 of its potential returns per unit of risk. The SALESFORCE INC CDR is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,767  in SALESFORCE INC CDR on November 29, 2024 and sell it today you would lose (197.00) from holding SALESFORCE INC CDR or give up 11.15% of portfolio value over 90 days.

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

Cars Inc  vs.  SALESFORCE INC CDR

Cars Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

SALESFORCE INC CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days SALESFORCE INC CDR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Cars and SALESFORCE INC

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

The idea behind Cars Inc and SALESFORCE INC CDR 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.