Correlation Between American States and Carsales

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

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

Diversification Opportunities for American States and Carsales

0.79

Correlation Coefficient

American States  Carsales

Poor diversification

The 3 months correlation between American and Carsales is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding American States Water and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom and American States 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 American States Water are associated (or correlated) with Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom has no effect on the direction of American States i.e., American States and Carsales go up and down completely randomly.

Pair Corralation between American States and Carsales

Assuming the 90 days horizon American States Water is expected to generate 1.0 times more return on investment than Carsales. However, American States Water is 1.0 times less risky than Carsales. It trades about -0.03 of its potential returns per unit of risk. CarsalesCom is currently generating about -0.04 per unit of risk. If you would invest  7,595  in American States Water on October 6, 2024 and sell it today you would lose (170.00) from holding American States Water or give up 2.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.5%
Values	Daily Returns

American States Water  vs.  CarsalesCom

American States Water

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American States Water has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, American States is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CarsalesCom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CarsalesCom has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Carsales is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American States and Carsales

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

The idea behind American States Water and CarsalesCom 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.