Correlation Between Copart and ABM Industries

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

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

Diversification Opportunities for Copart and ABM Industries

0.7

Correlation Coefficient

Copart  ABM Industries

Poor diversification

The 3 months correlation between Copart and ABM is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Copart Inc and ABM Industries Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABM Industries 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 ABM Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABM Industries has no effect on the direction of Copart i.e., Copart and ABM Industries go up and down completely randomly.

Pair Corralation between Copart and ABM Industries

Given the investment horizon of 90 days Copart is expected to generate 1.09 times less return on investment than ABM Industries. But when comparing it to its historical volatility, Copart Inc is 1.38 times less risky than ABM Industries. It trades about 0.09 of its potential returns per unit of risk. ABM Industries Incorporated is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,278  in ABM Industries Incorporated on September 2, 2024 and sell it today you would earn a total of  1,439  from holding ABM Industries Incorporated or generate 33.64% return on investment over 90 days.

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

Copart Inc  vs.  ABM Industries Incorporated

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. In spite of comparatively weak basic indicators, Copart unveiled solid returns over the last few months and may actually be approaching a breakup point.

ABM Industries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ABM Industries Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, ABM Industries is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Copart and ABM Industries

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

The idea behind Copart Inc and ABM Industries Incorporated 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.