Correlation Between PACCAR and Sphere Entertainment

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

By analyzing existing cross correlation between PACCAR Inc and Sphere Entertainment Co, you can compare the effects of market volatilities on PACCAR and Sphere Entertainment 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 Sphere Entertainment. Check out your portfolio center. Please also check ongoing floating volatility patterns of PACCAR and Sphere Entertainment.

Diversification Opportunities for PACCAR and Sphere Entertainment

-0.38

Correlation Coefficient

PACCAR  Sphere Entertainment

Very good diversification

The 3 months correlation between PACCAR and Sphere is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Sphere Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sphere Entertainment 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 Sphere Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sphere Entertainment has no effect on the direction of PACCAR i.e., PACCAR and Sphere Entertainment go up and down completely randomly.

Pair Corralation between PACCAR and Sphere Entertainment

Given the investment horizon of 90 days PACCAR Inc is expected to generate 0.65 times more return on investment than Sphere Entertainment. However, PACCAR Inc is 1.53 times less risky than Sphere Entertainment. It trades about 0.16 of its potential returns per unit of risk. Sphere Entertainment Co is currently generating about -0.04 per unit of risk. If you would invest  9,545  in PACCAR Inc on September 15, 2024 and sell it today you would earn a total of  1,756  from holding PACCAR Inc or generate 18.4% return on investment over 90 days.

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

PACCAR Inc  vs.  Sphere Entertainment Co

PACCAR Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, PACCAR reported solid returns over the last few months and may actually be approaching a breakup point.

Sphere Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sphere Entertainment Co has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest fragile performance, the Stock's technical indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with PACCAR and Sphere Entertainment

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

The idea behind PACCAR Inc and Sphere Entertainment Co 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.