Correlation Between Synchrony Financial and Carsales

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

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

Diversification Opportunities for Synchrony Financial and Carsales

0.55

Correlation Coefficient

Synchrony Financial  Carsales

Very weak diversification

The 3 months correlation between Synchrony and Carsales is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Synchrony Financial and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom and Synchrony Financial 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 Synchrony Financial 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 has no effect on the direction of Synchrony Financial i.e., Synchrony Financial and Carsales go up and down completely randomly.

Pair Corralation between Synchrony Financial and Carsales

Assuming the 90 days horizon Synchrony Financial is expected to generate 1.2 times more return on investment than Carsales. However, Synchrony Financial is 1.2 times more volatile than CarsalesCom. It trades about -0.03 of its potential returns per unit of risk. CarsalesCom is currently generating about -0.07 per unit of risk. If you would invest  6,510  in Synchrony Financial on October 12, 2024 and sell it today you would lose (74.00) from holding Synchrony Financial or give up 1.14% of portfolio value over 90 days.

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

Synchrony Financial  vs.  CarsalesCom

Synchrony Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Synchrony Financial are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Synchrony Financial reported solid returns over the last few months and may actually be approaching a breakup point.

CarsalesCom

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Carsales is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Synchrony Financial and Carsales

The main advantage of trading using opposite Synchrony Financial and Carsales positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Synchrony Financial 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 Synchrony Financial and CarsalesCom 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.