Correlation Between TRADEGATE and CARSALES

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

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

Diversification Opportunities for TRADEGATE and CARSALES

0.25

Correlation Coefficient

TRADEGATE  CARSALES

Modest diversification

The 3 months correlation between TRADEGATE and CARSALES is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding TRADEGATE and CARSALESCOM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CARSALESCOM and TRADEGATE 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 TRADEGATE 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 TRADEGATE i.e., TRADEGATE and CARSALES go up and down completely randomly.

Pair Corralation between TRADEGATE and CARSALES

Assuming the 90 days trading horizon TRADEGATE is expected to generate 10.6 times less return on investment than CARSALES. But when comparing it to its historical volatility, TRADEGATE is 8.55 times less risky than CARSALES. It trades about 0.31 of its potential returns per unit of risk. CARSALESCOM is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  2,280  in CARSALESCOM on September 1, 2024 and sell it today you would earn a total of  280.00  from holding CARSALESCOM or generate 12.28% return on investment over 90 days.

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

TRADEGATE  vs.  CARSALESCOM

TRADEGATE

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TRADEGATE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, TRADEGATE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

CARSALESCOM

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CARSALESCOM are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CARSALES exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TRADEGATE and CARSALES

The main advantage of trading using opposite TRADEGATE and CARSALES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRADEGATE 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's long position.

The idea behind TRADEGATE 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.