Correlation Between SLM Corp and Credit Acceptance

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

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

Diversification Opportunities for SLM Corp and Credit Acceptance

0.37

Correlation Coefficient

SLM Corp  Credit Acceptance

Weak diversification

The 3 months correlation between SLM and Credit is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding SLM Corp and Credit Acceptance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Credit Acceptance and SLM Corp 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 SLM Corp are associated (or correlated) with Credit Acceptance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Credit Acceptance has no effect on the direction of SLM Corp i.e., SLM Corp and Credit Acceptance go up and down completely randomly.

Pair Corralation between SLM Corp and Credit Acceptance

Considering the 90-day investment horizon SLM Corp is expected to generate 1.07 times less return on investment than Credit Acceptance. But when comparing it to its historical volatility, SLM Corp is 1.07 times less risky than Credit Acceptance. It trades about 0.08 of its potential returns per unit of risk. Credit Acceptance is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  46,920  in Credit Acceptance on December 27, 2024 and sell it today you would earn a total of  4,121  from holding Credit Acceptance or generate 8.78% return on investment over 90 days.

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

SLM Corp  vs.  Credit Acceptance

SLM Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SLM Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, SLM Corp may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Credit Acceptance

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Credit Acceptance are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Credit Acceptance may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with SLM Corp and Credit Acceptance

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

The idea behind SLM Corp and Credit Acceptance 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.