Correlation Between Carsales and Nike

Can any of the company-specific risk be diversified away by investing in both Carsales and Nike 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 Nike 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 Nike Inc, you can compare the effects of market volatilities on Carsales and Nike 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 Nike. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Nike.

Diversification Opportunities for Carsales and Nike

0.5

Correlation Coefficient

Carsales  Nike

Very weak diversification

The 3 months correlation between Carsales and Nike is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom Ltd ADR and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc 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 Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Carsales i.e., Carsales and Nike go up and down completely randomly.

Pair Corralation between Carsales and Nike

Assuming the 90 days horizon CarsalesCom Ltd ADR is expected to generate 1.7 times more return on investment than Nike. However, Carsales is 1.7 times more volatile than Nike Inc. It trades about -0.01 of its potential returns per unit of risk. Nike Inc is currently generating about -0.11 per unit of risk. If you would invest  4,550  in CarsalesCom Ltd ADR on December 29, 2024 and sell it today you would lose (290.00) from holding CarsalesCom Ltd ADR or give up 6.37% of portfolio value over 90 days.

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

CarsalesCom Ltd ADR  vs.  Nike Inc

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.

Nike Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's forward-looking signals 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 Nike

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

The idea behind CarsalesCom Ltd ADR and Nike 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.