Correlation Between Carsales and NET Power

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

Diversification Opportunities for Carsales and NET Power

0.52

Correlation Coefficient

Carsales  NET Power

Very weak diversification

The 3 months correlation between Carsales and NET is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom Ltd ADR and NET Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NET Power 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 NET Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NET Power has no effect on the direction of Carsales i.e., Carsales and NET Power go up and down completely randomly.

Pair Corralation between Carsales and NET Power

Assuming the 90 days horizon CarsalesCom Ltd ADR is expected to generate 0.52 times more return on investment than NET Power. However, CarsalesCom Ltd ADR is 1.91 times less risky than NET Power. It trades about -0.04 of its potential returns per unit of risk. NET Power is currently generating about -0.25 per unit of risk. If you would invest  4,659  in CarsalesCom Ltd ADR on December 21, 2024 and sell it today you would lose (559.00) from holding CarsalesCom Ltd ADR or give up 12.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

CarsalesCom Ltd ADR  vs.  NET Power

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 latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

NET Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days NET Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with fragile performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Carsales and NET Power

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

The idea behind CarsalesCom Ltd ADR and NET Power 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.