Correlation Between Carsales and Rave Restaurant

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

Diversification Opportunities for Carsales and Rave Restaurant

0.64

Correlation Coefficient

Carsales  Rave Restaurant

Poor diversification

The 3 months correlation between Carsales and Rave is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom Ltd ADR and Rave Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rave Restaurant Group 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 Rave Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rave Restaurant Group has no effect on the direction of Carsales i.e., Carsales and Rave Restaurant go up and down completely randomly.

Pair Corralation between Carsales and Rave Restaurant

Assuming the 90 days horizon CarsalesCom Ltd ADR is expected to under-perform the Rave Restaurant. But the pink sheet apears to be less risky and, when comparing its historical volatility, CarsalesCom Ltd ADR is 1.0 times less risky than Rave Restaurant. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Rave Restaurant Group is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  280.00  in Rave Restaurant Group on October 26, 2024 and sell it today you would lose (21.00) from holding Rave Restaurant Group or give up 7.5% of portfolio value over 90 days.

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

CarsalesCom Ltd ADR  vs.  Rave Restaurant Group

CarsalesCom ADR

Risk-Adjusted Performance

0 of 100

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.

Rave Restaurant Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rave Restaurant Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Rave Restaurant is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Carsales and Rave Restaurant

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

The idea behind CarsalesCom Ltd ADR and Rave Restaurant Group 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.