Correlation Between CARSALES and General Electric

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

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

Diversification Opportunities for CARSALES and General Electric

0.27

Correlation Coefficient

CARSALES  General Electric

Modest diversification

The 3 months correlation between CARSALES and General is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and General Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Electric 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 General Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Electric has no effect on the direction of CARSALES i.e., CARSALES and General Electric go up and down completely randomly.

Pair Corralation between CARSALES and General Electric

Assuming the 90 days trading horizon CARSALESCOM is expected to under-perform the General Electric. But the stock apears to be less risky and, when comparing its historical volatility, CARSALESCOM is 1.14 times less risky than General Electric. The stock trades about -0.1 of its potential returns per unit of risk. The General Electric is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  16,219  in General Electric on December 24, 2024 and sell it today you would earn a total of  2,531  from holding General Electric or generate 15.61% return on investment over 90 days.

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

CARSALESCOM  vs.  General Electric

CARSALESCOM

Risk-Adjusted Performance

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 latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

General Electric

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, General Electric unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CARSALES and General Electric

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

The idea behind CARSALESCOM and General Electric 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.