Correlation Between Clarke and Automotive Finco

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

By analyzing existing cross correlation between Clarke Inc and Automotive Finco Corp, you can compare the effects of market volatilities on Clarke and Automotive Finco 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 Clarke with a short position of Automotive Finco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clarke and Automotive Finco.

Diversification Opportunities for Clarke and Automotive Finco

-0.29

Correlation Coefficient

Clarke  Automotive Finco

Very good diversification

The 3 months correlation between Clarke and Automotive is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Clarke Inc and Automotive Finco Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automotive Finco Corp and Clarke 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 Clarke Inc are associated (or correlated) with Automotive Finco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automotive Finco Corp has no effect on the direction of Clarke i.e., Clarke and Automotive Finco go up and down completely randomly.

Pair Corralation between Clarke and Automotive Finco

Assuming the 90 days trading horizon Clarke Inc is expected to under-perform the Automotive Finco. But the stock apears to be less risky and, when comparing its historical volatility, Clarke Inc is 12.14 times less risky than Automotive Finco. The stock trades about -0.16 of its potential returns per unit of risk. The Automotive Finco Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  80.00  in Automotive Finco Corp on October 10, 2024 and sell it today you would earn a total of  8.00  from holding Automotive Finco Corp or generate 10.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Clarke Inc  vs.  Automotive Finco Corp

Clarke Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clarke Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Clarke is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Automotive Finco Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Automotive Finco Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Automotive Finco sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Clarke and Automotive Finco

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

The idea behind Clarke Inc and Automotive Finco Corp 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.