Correlation Between Carmat SA and Lowes Companies

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

By analyzing existing cross correlation between Carmat SA and Lowes Companies, you can compare the effects of market volatilities on Carmat SA and Lowes Companies 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 Carmat SA with a short position of Lowes Companies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carmat SA and Lowes Companies.

Diversification Opportunities for Carmat SA and Lowes Companies

0.42

Correlation Coefficient

Carmat SA  Lowes Companies

Very weak diversification

The 3 months correlation between Carmat and Lowes is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Carmat SA and Lowes Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lowes Companies and Carmat SA 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 Carmat SA are associated (or correlated) with Lowes Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowes Companies has no effect on the direction of Carmat SA i.e., Carmat SA and Lowes Companies go up and down completely randomly.

Pair Corralation between Carmat SA and Lowes Companies

Assuming the 90 days horizon Carmat SA is expected to under-perform the Lowes Companies. In addition to that, Carmat SA is 3.25 times more volatile than Lowes Companies. It trades about -0.03 of its total potential returns per unit of risk. Lowes Companies is currently generating about -0.09 per unit of volatility. If you would invest  23,478  in Lowes Companies on December 29, 2024 and sell it today you would lose (2,053) from holding Lowes Companies or give up 8.74% of portfolio value over 90 days.

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

Carmat SA  vs.  Lowes Companies

Carmat SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carmat SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Lowes Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lowes Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Carmat SA and Lowes Companies

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

The idea behind Carmat SA and Lowes Companies 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.