Correlation Between CARSALES and USWE SPORTS

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

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

Diversification Opportunities for CARSALES and USWE SPORTS

0.62

Correlation Coefficient

CARSALES  USWE SPORTS

Poor diversification

The 3 months correlation between CARSALES and USWE is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and USWE SPORTS AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USWE SPORTS AB and CARSALES 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 CARSALESCOM are associated (or correlated) with USWE SPORTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USWE SPORTS AB has no effect on the direction of CARSALES i.e., CARSALES and USWE SPORTS go up and down completely randomly.

Pair Corralation between CARSALES and USWE SPORTS

Assuming the 90 days trading horizon CARSALESCOM is expected to generate 0.4 times more return on investment than USWE SPORTS. However, CARSALESCOM is 2.53 times less risky than USWE SPORTS. It trades about 0.07 of its potential returns per unit of risk. USWE SPORTS AB is currently generating about -0.02 per unit of risk. If you would invest  1,329  in CARSALESCOM on October 4, 2024 and sell it today you would earn a total of  851.00  from holding CARSALESCOM or generate 64.03% return on investment over 90 days.

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

CARSALESCOM  vs.  USWE SPORTS AB

CARSALESCOM

Risk-Adjusted Performance

0 of 100

Very Weak

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

USWE SPORTS AB

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in USWE SPORTS AB are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, USWE SPORTS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CARSALES and USWE SPORTS

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

The idea behind CARSALESCOM and USWE SPORTS AB 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.