Correlation Between BRP and Cars

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

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

Diversification Opportunities for BRP and Cars

-0.55

Correlation Coefficient

BRP  Cars

Excellent diversification

The 3 months correlation between BRP and Cars is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and BRP 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 BRP Inc are associated (or correlated) with Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of BRP i.e., BRP and Cars go up and down completely randomly.

Pair Corralation between BRP and Cars

Given the investment horizon of 90 days BRP Inc is expected to under-perform the Cars. In addition to that, BRP is 1.07 times more volatile than Cars Inc. It trades about -0.06 of its total potential returns per unit of risk. Cars Inc is currently generating about -0.03 per unit of volatility. If you would invest  1,975  in Cars Inc on September 25, 2024 and sell it today you would lose (241.00) from holding Cars Inc or give up 12.2% of portfolio value over 90 days.

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

BRP Inc  vs.  Cars Inc

BRP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Cars Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Cars is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BRP and Cars

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

The idea behind BRP Inc and Cars 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.