Correlation Between PACCAR and Shyft

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

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

Diversification Opportunities for PACCAR and Shyft

0.77

Correlation Coefficient

PACCAR  Shyft

Poor diversification

The 3 months correlation between PACCAR and Shyft is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and The Shyft Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shyft Group and PACCAR 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 PACCAR Inc are associated (or correlated) with Shyft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shyft Group has no effect on the direction of PACCAR i.e., PACCAR and Shyft go up and down completely randomly.

Pair Corralation between PACCAR and Shyft

Assuming the 90 days horizon PACCAR Inc is expected to generate 0.48 times more return on investment than Shyft. However, PACCAR Inc is 2.07 times less risky than Shyft. It trades about 0.08 of its potential returns per unit of risk. The Shyft Group is currently generating about -0.03 per unit of risk. If you would invest  5,647  in PACCAR Inc on September 28, 2024 and sell it today you would earn a total of  4,393  from holding PACCAR Inc or generate 77.79% return on investment over 90 days.

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

PACCAR Inc  vs.  The Shyft Group

PACCAR Inc

Risk-Adjusted Performance

11 of 100

OK

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

Shyft Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with PACCAR and Shyft

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

The idea behind PACCAR Inc and The Shyft 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.

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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.