Correlation Between Carsmartt and On4 Communications

Can any of the company-specific risk be diversified away by investing in both Carsmartt and On4 Communications 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 Carsmartt and On4 Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Carsmartt and On4 Communications, you can compare the effects of market volatilities on Carsmartt and On4 Communications 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 Carsmartt with a short position of On4 Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsmartt and On4 Communications.

Diversification Opportunities for Carsmartt and On4 Communications

-0.16

Correlation Coefficient

Carsmartt  On4 Communications

Good diversification

The 3 months correlation between Carsmartt and On4 is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Carsmartt and On4 Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on On4 Communications and Carsmartt 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 Carsmartt are associated (or correlated) with On4 Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of On4 Communications has no effect on the direction of Carsmartt i.e., Carsmartt and On4 Communications go up and down completely randomly.

Pair Corralation between Carsmartt and On4 Communications

Given the investment horizon of 90 days Carsmartt is expected to under-perform the On4 Communications. But the pink sheet apears to be less risky and, when comparing its historical volatility, Carsmartt is 14.0 times less risky than On4 Communications. The pink sheet trades about -0.05 of its potential returns per unit of risk. The On4 Communications is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.01  in On4 Communications on September 14, 2024 and sell it today you would earn a total of  0.00  from holding On4 Communications or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Carsmartt  vs.  On4 Communications

Carsmartt

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carsmartt has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

On4 Communications

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in On4 Communications are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, On4 Communications demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Carsmartt and On4 Communications

The main advantage of trading using opposite Carsmartt and On4 Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsmartt position performs unexpectedly, On4 Communications 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 On4 Communications will offset losses from the drop in On4 Communications' long position.

The idea behind Carsmartt and On4 Communications 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.