Correlation Between Carsales and SYSTEMAIR

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

By analyzing existing cross correlation between CarsalesCom and SYSTEMAIR AB, you can compare the effects of market volatilities on Carsales and SYSTEMAIR 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 SYSTEMAIR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and SYSTEMAIR.

Diversification Opportunities for Carsales and SYSTEMAIR

0.39

Correlation Coefficient

Carsales  SYSTEMAIR

Weak diversification

The 3 months correlation between Carsales and SYSTEMAIR is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and SYSTEMAIR AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SYSTEMAIR 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 SYSTEMAIR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SYSTEMAIR AB has no effect on the direction of Carsales i.e., Carsales and SYSTEMAIR go up and down completely randomly.

Pair Corralation between Carsales and SYSTEMAIR

Assuming the 90 days horizon CarsalesCom is expected to generate 0.79 times more return on investment than SYSTEMAIR. However, CarsalesCom is 1.26 times less risky than SYSTEMAIR. It trades about -0.1 of its potential returns per unit of risk. SYSTEMAIR AB is currently generating about -0.11 per unit of risk. If you would invest  2,360  in CarsalesCom on October 11, 2024 and sell it today you would lose (60.00) from holding CarsalesCom or give up 2.54% of portfolio value over 90 days.

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

CarsalesCom  vs.  SYSTEMAIR AB

CarsalesCom

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Carsales is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

SYSTEMAIR AB

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SYSTEMAIR AB are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SYSTEMAIR may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Carsales and SYSTEMAIR

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

The idea behind CarsalesCom and SYSTEMAIR 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.