Correlation Between Carsales and Modine Manufacturing

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

By analyzing existing cross correlation between CarsalesCom Ltd ADR and Modine Manufacturing, you can compare the effects of market volatilities on Carsales and Modine Manufacturing 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 Carsales with a short position of Modine Manufacturing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Modine Manufacturing.

Diversification Opportunities for Carsales and Modine Manufacturing

0.33

Correlation Coefficient

Carsales  Modine Manufacturing

Weak diversification

The 3 months correlation between Carsales and Modine is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom Ltd ADR and Modine Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Modine Manufacturing and Carsales 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 CarsalesCom Ltd ADR are associated (or correlated) with Modine Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Modine Manufacturing has no effect on the direction of Carsales i.e., Carsales and Modine Manufacturing go up and down completely randomly.

Pair Corralation between Carsales and Modine Manufacturing

Assuming the 90 days horizon CarsalesCom Ltd ADR is expected to generate 0.7 times more return on investment than Modine Manufacturing. However, CarsalesCom Ltd ADR is 1.42 times less risky than Modine Manufacturing. It trades about -0.02 of its potential returns per unit of risk. Modine Manufacturing is currently generating about -0.06 per unit of risk. If you would invest  4,659  in CarsalesCom Ltd ADR on December 22, 2024 and sell it today you would lose (389.00) from holding CarsalesCom Ltd ADR or give up 8.35% of portfolio value over 90 days.

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

CarsalesCom Ltd ADR  vs.  Modine Manufacturing

CarsalesCom ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days CarsalesCom Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Carsales is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Modine Manufacturing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Modine Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Carsales and Modine Manufacturing

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

The idea behind CarsalesCom Ltd ADR and Modine Manufacturing 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.