Correlation Between CARSALESCOM and Bank of America

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

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

Diversification Opportunities for CARSALESCOM and Bank of America

0.61

Correlation Coefficient

CARSALESCOM  Bank of America

Poor diversification

The 3 months correlation between CARSALESCOM and Bank is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications and CARSALESCOM 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of CARSALESCOM i.e., CARSALESCOM and Bank of America go up and down completely randomly.

Pair Corralation between CARSALESCOM and Bank of America

Assuming the 90 days trading horizon CARSALESCOM is expected to generate 1.26 times more return on investment than Bank of America. However, CARSALESCOM is 1.26 times more volatile than Verizon Communications. It trades about 0.03 of its potential returns per unit of risk. Verizon Communications is currently generating about 0.03 per unit of risk. If you would invest  2,045  in CARSALESCOM on October 8, 2024 and sell it today you would earn a total of  175.00  from holding CARSALESCOM or generate 8.56% return on investment over 90 days.

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

CARSALESCOM  vs.  Verizon Communications

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, CARSALESCOM is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Verizon Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verizon Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Bank of America is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CARSALESCOM and Bank of America

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

The idea behind CARSALESCOM and Verizon Communications 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.