Correlation Between River and Cars

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

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

Diversification Opportunities for River and Cars

0.19

Correlation Coefficient

River  Cars

Average diversification

The 3 months correlation between River and Cars is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding River and Mercantile and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and River 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 River and Mercantile 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 River i.e., River and Cars go up and down completely randomly.

Pair Corralation between River and Cars

Assuming the 90 days trading horizon River and Mercantile is expected to generate 0.05 times more return on investment than Cars. However, River and Mercantile is 21.29 times less risky than Cars. It trades about -0.23 of its potential returns per unit of risk. Cars Inc is currently generating about -0.46 per unit of risk. If you would invest  17,850  in River and Mercantile on October 6, 2024 and sell it today you would lose (100.00) from holding River and Mercantile or give up 0.56% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	63.16%
Values	Daily Returns

River and Mercantile  vs.  Cars Inc

River and Mercantile

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in River and Mercantile are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, River is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Cars Inc

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, Cars unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with River and Cars

The main advantage of trading using opposite River and Cars positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if River 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 River and Mercantile 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 Stocks Directory module to find actively traded stocks across global markets.