Correlation Between COMMERCIAL VEHICLE and Auto Trader

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

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

Diversification Opportunities for COMMERCIAL VEHICLE and Auto Trader

0.69

Correlation Coefficient

COMMERCIAL VEHICLE  Auto Trader

Poor diversification

The 3 months correlation between COMMERCIAL and Auto is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding COMMERCIAL VEHICLE and Auto Trader Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auto Trader Group and COMMERCIAL VEHICLE 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 COMMERCIAL VEHICLE are associated (or correlated) with Auto Trader. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auto Trader Group has no effect on the direction of COMMERCIAL VEHICLE i.e., COMMERCIAL VEHICLE and Auto Trader go up and down completely randomly.

Pair Corralation between COMMERCIAL VEHICLE and Auto Trader

Assuming the 90 days trading horizon COMMERCIAL VEHICLE is expected to generate 3.64 times more return on investment than Auto Trader. However, COMMERCIAL VEHICLE is 3.64 times more volatile than Auto Trader Group. It trades about 0.07 of its potential returns per unit of risk. Auto Trader Group is currently generating about 0.15 per unit of risk. If you would invest  228.00  in COMMERCIAL VEHICLE on September 17, 2024 and sell it today you would earn a total of  10.00  from holding COMMERCIAL VEHICLE or generate 4.39% return on investment over 90 days.

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

COMMERCIAL VEHICLE  vs.  Auto Trader Group

COMMERCIAL VEHICLE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COMMERCIAL VEHICLE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Auto Trader Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with COMMERCIAL VEHICLE and Auto Trader

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

The idea behind COMMERCIAL VEHICLE and Auto Trader 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.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.