Correlation Between Carsales and SIDETRADE

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

By analyzing existing cross correlation between CarsalesCom and SIDETRADE EO 1, you can compare the effects of market volatilities on Carsales and SIDETRADE 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 SIDETRADE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and SIDETRADE.

Diversification Opportunities for Carsales and SIDETRADE

0.59

Correlation Coefficient

Carsales  SIDETRADE

Very weak diversification

The 3 months correlation between Carsales and SIDETRADE is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding CarsalesCom and SIDETRADE EO 1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIDETRADE EO 1 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 SIDETRADE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIDETRADE EO 1 has no effect on the direction of Carsales i.e., Carsales and SIDETRADE go up and down completely randomly.

Pair Corralation between Carsales and SIDETRADE

Assuming the 90 days horizon CarsalesCom is expected to generate 0.74 times more return on investment than SIDETRADE. However, CarsalesCom is 1.36 times less risky than SIDETRADE. It trades about 0.1 of its potential returns per unit of risk. SIDETRADE EO 1 is currently generating about 0.05 per unit of risk. If you would invest  1,291  in CarsalesCom on September 4, 2024 and sell it today you would earn a total of  1,269  from holding CarsalesCom or generate 98.3% return on investment over 90 days.

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

CarsalesCom  vs.  SIDETRADE EO 1

CarsalesCom

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CarsalesCom are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Carsales reported solid returns over the last few months and may actually be approaching a breakup point.

SIDETRADE EO 1

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SIDETRADE EO 1 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, SIDETRADE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Carsales and SIDETRADE

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

The idea behind CarsalesCom and SIDETRADE EO 1 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.