Correlation Between Carsales and Southland Holdings

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

Diversification Opportunities for Carsales and Southland Holdings

0.06

Correlation Coefficient

Carsales  Southland Holdings

Significant diversification

The 3 months correlation between Carsales and Southland is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom Ltd ADR and Southland Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southland Holdings 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 Southland Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southland Holdings has no effect on the direction of Carsales i.e., Carsales and Southland Holdings go up and down completely randomly.

Pair Corralation between Carsales and Southland Holdings

Assuming the 90 days horizon CarsalesCom Ltd ADR is expected to generate 1.03 times more return on investment than Southland Holdings. However, Carsales is 1.03 times more volatile than Southland Holdings. It trades about -0.01 of its potential returns per unit of risk. Southland Holdings is currently generating about -0.02 per unit of risk. If you would invest  4,497  in CarsalesCom Ltd ADR on December 24, 2024 and sell it today you would lose (227.00) from holding CarsalesCom Ltd ADR or give up 5.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

CarsalesCom Ltd ADR  vs.  Southland Holdings

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.

Southland Holdings

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Carsales and Southland Holdings

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

The idea behind CarsalesCom Ltd ADR and Southland Holdings 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..