Correlation Between National Bank and Cars

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

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

Diversification Opportunities for National Bank and Cars

0.84

Correlation Coefficient

National Bank  Cars

Very poor diversification

The 3 months correlation between National and Cars is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and National Bank 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 National Bank Holdings 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 National Bank i.e., National Bank and Cars go up and down completely randomly.

Pair Corralation between National Bank and Cars

Assuming the 90 days horizon National Bank Holdings is expected to generate 0.76 times more return on investment than Cars. However, National Bank Holdings is 1.32 times less risky than Cars. It trades about -0.39 of its potential returns per unit of risk. Cars Inc is currently generating about -0.44 per unit of risk. If you would invest  4,440  in National Bank Holdings on October 4, 2024 and sell it today you would lose (400.00) from holding National Bank Holdings or give up 9.01% of portfolio value over 90 days.

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

National Bank Holdings  vs.  Cars Inc

National Bank Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, National Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cars Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cars Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cars reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bank and Cars

The main advantage of trading using opposite National Bank and Cars positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank 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 National Bank Holdings 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.