Correlation Between Genuine Parts and Canadian TireLimited

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

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

Diversification Opportunities for Genuine Parts and Canadian TireLimited

-0.5

Correlation Coefficient

Genuine Parts  Canadian TireLimited

Very good diversification

The 3 months correlation between Genuine and Canadian is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Genuine Parts and Canadian Tire in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian TireLimited and Genuine Parts 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 Genuine Parts are associated (or correlated) with Canadian TireLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian TireLimited has no effect on the direction of Genuine Parts i.e., Genuine Parts and Canadian TireLimited go up and down completely randomly.

Pair Corralation between Genuine Parts and Canadian TireLimited

Assuming the 90 days horizon Genuine Parts is expected to generate 0.83 times more return on investment than Canadian TireLimited. However, Genuine Parts is 1.2 times less risky than Canadian TireLimited. It trades about 0.05 of its potential returns per unit of risk. Canadian Tire is currently generating about -0.04 per unit of risk. If you would invest  10,983  in Genuine Parts on December 22, 2024 and sell it today you would earn a total of  457.00  from holding Genuine Parts or generate 4.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Genuine Parts  vs.  Canadian Tire

Genuine Parts

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Genuine Parts are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Genuine Parts is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Canadian TireLimited

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Genuine Parts and Canadian TireLimited

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

The idea behind Genuine Parts and Canadian Tire 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.