Correlation Between CARSALES and Canadian Tire

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

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

Diversification Opportunities for CARSALES and Canadian Tire

0.79

Correlation Coefficient

CARSALES  Canadian Tire

Poor diversification

The 3 months correlation between CARSALES and Canadian is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and Canadian Tire Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Tire Corp 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 Canadian Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Tire Corp has no effect on the direction of CARSALES i.e., CARSALES and Canadian Tire go up and down completely randomly.

Pair Corralation between CARSALES and Canadian Tire

Assuming the 90 days trading horizon CARSALESCOM is expected to under-perform the Canadian Tire. In addition to that, CARSALES is 1.11 times more volatile than Canadian Tire Corp. It trades about -0.1 of its total potential returns per unit of risk. Canadian Tire Corp is currently generating about -0.03 per unit of volatility. If you would invest  9,938  in Canadian Tire Corp on December 25, 2024 and sell it today you would lose (368.00) from holding Canadian Tire Corp or give up 3.7% of portfolio value over 90 days.

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

CARSALESCOM  vs.  Canadian Tire Corp

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.

Canadian Tire Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Tire Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Canadian Tire is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CARSALES and Canadian Tire

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

The idea behind CARSALESCOM and Canadian Tire Corp 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.