Correlation Between Rave Restaurant and Carsales

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

By analyzing existing cross correlation between Rave Restaurant Group and CarsalesCom Ltd ADR, you can compare the effects of market volatilities on Rave Restaurant and Carsales 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 Rave Restaurant with a short position of Carsales. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rave Restaurant and Carsales.

Diversification Opportunities for Rave Restaurant and Carsales

0.64

Correlation Coefficient

Rave Restaurant  Carsales

Poor diversification

The 3 months correlation between Rave and Carsales is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Rave Restaurant Group and CarsalesCom Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom ADR and Rave Restaurant 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 Rave Restaurant Group are associated (or correlated) with Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom ADR has no effect on the direction of Rave Restaurant i.e., Rave Restaurant and Carsales go up and down completely randomly.

Pair Corralation between Rave Restaurant and Carsales

If you would invest  4,550  in CarsalesCom Ltd ADR on October 26, 2024 and sell it today you would earn a total of  0.00  from holding CarsalesCom Ltd ADR or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Rave Restaurant Group  vs.  CarsalesCom Ltd ADR

Rave Restaurant Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

CarsalesCom ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CarsalesCom Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Rave Restaurant and Carsales

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

The idea behind Rave Restaurant Group and CarsalesCom Ltd ADR 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.