Correlation Between Cars and Advanced Info

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

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

Diversification Opportunities for Cars and Advanced Info

0.62

Correlation Coefficient

Cars  Advanced Info

Poor diversification

The 3 months correlation between Cars and Advanced is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Cars Inc and Advanced Info Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Info Service 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 Advanced Info. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Info Service has no effect on the direction of Cars i.e., Cars and Advanced Info go up and down completely randomly.

Pair Corralation between Cars and Advanced Info

Assuming the 90 days horizon Cars is expected to generate 1.06 times less return on investment than Advanced Info. In addition to that, Cars is 1.73 times more volatile than Advanced Info Service. It trades about 0.03 of its total potential returns per unit of risk. Advanced Info Service is currently generating about 0.05 per unit of volatility. If you would invest  555.00  in Advanced Info Service on October 10, 2024 and sell it today you would earn a total of  215.00  from holding Advanced Info Service or generate 38.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Cars Inc  vs.  Advanced Info Service

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 unsteady basic indicators, Cars reported solid returns over the last few months and may actually be approaching a breakup point.

Advanced Info Service

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Info Service are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Advanced Info may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Cars and Advanced Info

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

The idea behind Cars Inc and Advanced Info Service 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.