Correlation Between Carriage Services and El Pollo

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

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

Diversification Opportunities for Carriage Services and El Pollo

0.82

Correlation Coefficient

Carriage Services  El Pollo

Very poor diversification

The 3 months correlation between Carriage and LOCO is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Carriage Services and El Pollo Loco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Pollo Loco and Carriage Services 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 Carriage Services are associated (or correlated) with El Pollo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Pollo Loco has no effect on the direction of Carriage Services i.e., Carriage Services and El Pollo go up and down completely randomly.

Pair Corralation between Carriage Services and El Pollo

Considering the 90-day investment horizon Carriage Services is expected to generate 0.78 times more return on investment than El Pollo. However, Carriage Services is 1.29 times less risky than El Pollo. It trades about -0.05 of its potential returns per unit of risk. El Pollo Loco is currently generating about -0.1 per unit of risk. If you would invest  4,037  in Carriage Services on December 20, 2024 and sell it today you would lose (181.00) from holding Carriage Services or give up 4.48% of portfolio value over 90 days.

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

Carriage Services  vs.  El Pollo Loco

Carriage Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carriage Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Carriage Services is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

El Pollo Loco

Risk-Adjusted Performance

Very Weak

Over the last 90 days El Pollo Loco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Carriage Services and El Pollo

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

The idea behind Carriage Services and El Pollo Loco 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.