Correlation Between CARSALES and TRAVEL +

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

By analyzing existing cross correlation between CARSALESCOM and TRAVEL LEISURE DL 01, you can compare the effects of market volatilities on CARSALES and TRAVEL + 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 TRAVEL +. Check out your portfolio center. Please also check ongoing floating volatility patterns of CARSALES and TRAVEL +.

Diversification Opportunities for CARSALES and TRAVEL +

0.66

Correlation Coefficient

CARSALES  TRAVEL +

Poor diversification

The 3 months correlation between CARSALES and TRAVEL is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and TRAVEL LEISURE DL 01 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRAVEL LEISURE DL 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 TRAVEL +. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRAVEL LEISURE DL has no effect on the direction of CARSALES i.e., CARSALES and TRAVEL + go up and down completely randomly.

Pair Corralation between CARSALES and TRAVEL +

Assuming the 90 days trading horizon CARSALESCOM is expected to under-perform the TRAVEL +. But the stock apears to be less risky and, when comparing its historical volatility, CARSALESCOM is 1.09 times less risky than TRAVEL +. The stock trades about -0.1 of its potential returns per unit of risk. The TRAVEL LEISURE DL 01 is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  4,822  in TRAVEL LEISURE DL 01 on December 25, 2024 and sell it today you would lose (442.00) from holding TRAVEL LEISURE DL 01 or give up 9.17% of portfolio value over 90 days.

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

CARSALESCOM  vs.  TRAVEL LEISURE DL 01

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.

TRAVEL LEISURE DL

Risk-Adjusted Performance

Very Weak

Over the last 90 days TRAVEL LEISURE DL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with CARSALES and TRAVEL +

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

The idea behind CARSALESCOM and TRAVEL LEISURE DL 01 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.