Correlation Between Copart and Cars

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

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

Diversification Opportunities for Copart and Cars

0.86

Correlation Coefficient

Copart  Cars

Very poor diversification

The 3 months correlation between Copart and Cars is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Copart Inc and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and Copart 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 Copart Inc are associated (or correlated) with Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of Copart i.e., Copart and Cars go up and down completely randomly.

Pair Corralation between Copart and Cars

Assuming the 90 days horizon Copart Inc is expected to generate 1.46 times more return on investment than Cars. However, Copart is 1.46 times more volatile than Cars Inc. It trades about 0.12 of its potential returns per unit of risk. Cars Inc is currently generating about -0.06 per unit of risk. If you would invest  5,198  in Copart Inc on September 22, 2024 and sell it today you would earn a total of  407.00  from holding Copart Inc or generate 7.83% return on investment over 90 days.

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

Copart Inc  vs.  Cars Inc

Copart Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Copart Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Copart reported solid returns over the last few months and may actually be approaching a breakup point.

Cars Inc

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Cars is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Copart and Cars

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

The idea behind Copart Inc and Cars Inc 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.